RBI makes Trading in Government Bonds Easier

Retail investors can now start an account with India’s apex bank to trade in government bonds. Earlier this year, RBI granted direct access to the government bond market for retail investors.

With both these moves into play, trading in government bonds for retail investors has now become accessible.

Key highlights of this move

RBI’s move to allow retail investors to start an account for govt. bond trading has broadened their access to the market, which was previously restricted.

Here are the key highlights:

• RBI allows opening of accounts for retail investors to trade in govt. bonds.
• Retail investors get direct access to govt. bond market in the country.
• RBI will regulate primary and secondary market access (also known as retail direct).

Government bond – Retail investor’s license to bond and bargain

This move by the RBI has opened up opportunities for retail investors to access the safest investment option currently available. Henceforth, middle-class savings can be utilised to buy direct bonds by opening a dedicated account that is not likely to attract added expenses.

Experts say that this new move will open horizons for retail investors. They will invest in the bond trading platform that was earlier only meant for institutional investors.

The RBI further mentions that even non-resident Indians will be able to trade in govt. bonds. However, they will have to follow the FEMA (Foreign Exchange Management Act) rules for the same.

Also, after the registration is complete, the RDG (Retail Direct Gilt) account will be active for investors. The RBI further states that investors could use the same account for further trading at NDS-OM (Negotiated Dealing System – Order Matching) and place bids in primary markets as well.

Moreover, for primary auctions, investors will be allowed just one bid per security. These investors can further initiate the payment through net banking. The funds will be blocked and will get debited after allotment.

Why has the RBI allowed access to retail investors?

The primary aim of India’s Central bank is to broaden retail participation in govt. bonds and improve access to retail investors.

Furthermore, the move to allow starting an RDG account will:

• Increase investor base
• Prepare retail investors for enhanced participation in govt. securities market
• Complete govt. borrowing programme (2021-2022) swiftly

Why should retail investors take note?

Before this announcement, retail investors were restricted from bidding for government securities.

With this latest move, the RBI has come up with certain measures to change this fact. For instance, the Central Bank has introduced non-competitive biddings in the primary auctions. This permits aggregate primary purchases in the stock market.

This means that stock exchanges could place an order by aggregating the retail demand. However, RBI has now come up with different moves to shift this aggregator model.

With this move, India becomes the first Asian country to allow retail investors to purchase govt. bonds.

What are the other countries permitting direct retail participation?

Only a handful of global nations, like Brazil and the United States, allow direct involvement of retail investors in govt. securities.

Bottom line

Evidently, the move to ease bond trading for retail investors is appreciable. Central Bank’s decision to allow retail investors to partake in direct purchase of govt. debt has made India the first Asian country to allow so. This move is all set to encourage small investors to increase their involvement in govt. bonds.

 

Frequently asked questions

What will be the ticket size for these investments?

The ticket size for these investments will be as low as Rs. 10000.

Since when can retail investors avail this facility?

RBI has not yet released the date from which such investors will be able to avail this facility.

How can investors open the RDG account?

Investors will have to complete the KYC formality by providing some basic documents.