Retail investors will soon be able to easily access the government securities (G-sec) market directly. Currently, they can participate only through mutual funds or insurance products.
The Reserve Bank of India (RBI) announced measures to encourage retail participation of retail and mid-segment investors in the G-sec market. These measures include a web-based solution for all mid-segment and retail investors who have gilt accounts to participate in the G-sec market and providing these investors direct access to both primary and secondary market platforms without any intermediary. For this, alternate channels of distribution of G-secs would be created, RBI said.
To promote trading of G-secs on stock exchanges, seamless movement of securities from subsidiary general ledger (SGL) form to demat form, and vice-versa, is required. For this, demat account holders will be allowed to put through trades on negotiated dealing system-order matching or NDS-OM, RBI said.
"As the implementation of these reforms involves multiple agencies, it is proposed to constitute an Implementation Group with representatives from all stakeholders to roll out the measures within a period of six months,'" RBI said.
According to experts, the move to encourage retail participation will create depth in the G-sec market, add volumes and improve pricing mechanism.
Currently, the problem that retail investors face while investing in G-secs is that securities are held in the SGL accounts and trading on exchanges happen only in demat form. So, if an individual investor wants to convert securities from SGL to demat, he has to make a request to RBI for the conversion.
"The entire process can take up to a week and the investor might miss out the price at which he wants to sell or buy securities. It is not possible for retail investors to trade in SGL accounts. But once the conversion from SGL to demat and vice-versa happens smoothly, investors will be able to sell or buy G-secs easily in demat form," said Ajay Magnulia, head (fixed income) at Edelweiss Financial Services.
By encouraging retail participation, RBI is trying to diversify investor savings into G-secs and allowing an alternative investment option which is risk-free, says N S Venkatesh, executive director and chief financial officer, IDBI Bank.
"G-secs are a long-term savings option; for short-term, investors can look at T-Bills. Most retail investors already have demat accounts for their equity investments. So, now they will be able to invest in G-secs through the demat account," he added. Going ahead, banks will offer facilities to retail investors for investing in G-Secs through their portals.
The advantages of investing in G-secs are that there is no credit risk because these are bonds issued by the Government of India. Besides, with the introduction of 30-40 year bonds, these can be used for longer-term investment goals, such as retirement planning. "Long -term bonds can be used to build an annuity for retirement. Over a 30-year horizon, G-secs will give good returns," said Venkatesh.
With inflation coming down and interest rates declining, G-sec investments will give not just coupon rates, but also capital appreciation, Magnulia said.
"Today, if a retail investor wants to invest in G-secs, one option is to invest in Interest Rate Futures, where there is a premium. Or else, you invest through mutual funds, insurance plans or retirements. But then, you have no freedom to choose the securities you want. By investing directly, investors can have direct control over their investments," he added.
Currently, it is cumbersome for retail participants to trade because they have to maintain a SGL account and trading can be done only at the treasury. Once trading will be allowed through demat, the bank will become the broker.
According to the treasury head of a public sector bank, security must be beefed up before opening up the G-sec market for trading through web-based platforms.
