Now, buy govt bonds online, bid in T-bill auctions on new G-sec platforms

Retail investors can now participate in RBI auctions via exchanges and hold the securities in their demat account

For retail investors, buying government securities (G-secs) is now as easy as investing in a stock. The National Stock Exchange and Bombay Stock Exchange have launched e-Gsec platforms that allow investors to buy such securities online and hold them in existing demat accounts.

Investors can use the platform to participate in Reserve bank of India’s auctions. “The banking regulator reserves five per cent of the notified amount for non-competitive bidding. The securities are offered at a fixed price to small investors based on the weighted average cost,” Venu Madhav, chief operating officer at Zerodha. You can use as little as Rs 10,000 to buy even one government bond.

The RBI’s move to allow small investors in the auctions can help the typical fixed deposit (FD) investor to earn slightly higher returns than FDs. While the State Bank of India offers 10-year FD at 6.75 per cent, the 10-year G-Sec trades in the range of 7.7-7.8 per cent. The e-Gsec platform offers not only long-tenured bonds but also treasury bills (T-Bills) that have a maturity of 91 days, 182 days and 364 days.

Until now, if an investor wanted to invest in G-Secs, the easiest option available was gilt funds. The funds are, however, highly volatile. When interest rates are falling, they offer double-digit returns, and the return turns negative when interest rate rise. “Investors need to time the entry and exit in these funds and that has to be done with professional help. Gilt funds are not a mass market product,” says Arvind Rao, founder, Arvind Rao & Associates.

While a retail investor can buy G-Secs in an auction, there is no secondary market for them to sell the small lots as of now. When an investor buys G-Sec through the exchanges, they need to invest with a view of holding them until maturity. “An investor cannot use this facility to gain from the interest rate movement. If the interest rate falls in the future and the yields on G-Secs rise, the investor will not be able to sell and monetise their holdings,” says Rao.

Direct investment in G-Secs makes sense for those looking to invest in debt as part of the asset allocation for the long term. “Investors should look at the direct investment in G-Secs as an alternative to FD for now until the secondary market develops and offer trading opportunities,” says Malhar Majumder, partner. Positive Vibes Consulting and Advisory.

Another option for such investor is Government of India’s (GoI) savings bond that offers 7.75 per cent returns. These bonds are, however, available only for a seven-year tenure. G-Secs and treasury bills offer different tenures ranging from few months to more than a decade. But there’s an additional cost to investing in G-Secs and T-Bills. You need to shell out annual maintenance charges for the demat account which can range from Rs 250 to Rs 750 whereas there’s no requirement for investors to have a demat account for GoI savings bonds.