Pradeep Agarwal: G-Secs now opened for retail investors – Benefits and Challenges

As a welcoming move for retail investors, the Reserve Bank of India announced an open opportunity to directly access its government securities trading platforms. This signifies that India’s $1.1 trillion sovereign bond market has ultimately unbolted to individual investors. As per RBI’s statement on Development and Regulatory Policies, it mentioned that retail investors can open their gilt accounts with RBI, and trade directly in government securities. Pradeep Agarwal agrees and describes it as a major structural reform and further talks about the avenue this scheme offers to the retail investors. 

The expert believes that all the new moves that come into action in the financial market that brings the sovereign bonds directly to the investors is a move worth appreciation. So far, only giant institutions were participating in the government securities. A retail investor had to go through a mutual fund group in case they wanted to participate. Notably, now retail investors can make their holdings through two routes – primary issuance of G-Secs and secondary market.

In case of primary issuance of G-Secs, bid can be placed by investors as per the non-competitive scheme for participation in primary auction of G-Secs and procedural guidelines for SGB issuance (Sovereign Gold Bond). While, for secondary market investment, investors can buy and sell G-secs on Negotiated Dealing System. 

As a one-stop-solution to facilitate investment in G-Secs, this strategic move shows that common individuals can rely on Indian government for their financial growth by participating in the government securities market. It has endless benefits for small investors, to name a few Pradeep Agarwal says, “It enables people to explore a risk-free intermediate system of investment that gives access to wide range of securities market. It is a safe medium that make people earn peril modified returns.” 

With this move, India will join a few selected countries that enables retail investors to access government controlled trading platforms. Pradeep Agarwal says, “This move is surely beneficial for investors and on the whole for the country because it will enlarge the span of investment and made admittance to capital market simple and secure for individuals.” He adds, “The market is clearly in an unstable atmosphere, therefore the scheme guarantees permanence to various sections of Indian society – small businessmen, senior citizens, middle class people, and even to housewives who have assured returns with ready fluidity via secondary market exercises.” 

Notably, it is brought into knowledge that the registration process is simple and potential investors can do it without any complications. The RBI informs that people have to open a Retail Direct Gilt (RDG) as first step of the registration process. To do that, prospective investors must have a pan card, a savings bank account only in Indian currency and any legal document for Know Your Customer (KYC) purposes. In addition, an investor must have a valid email ID and a registered mobile number. After the registration process with retail direct gilt account is done, they can pick and choose the tenure of the bonds and also the securities for themselves. 

Nevertheless, G-Secs investments has their shortcomings too. G-Secs provide adequate fluidness because the demand from big financial oeganisations is high, but these companies purchase in enormous volume. It is not practical for investors to get rid of their holdings to banks.  

Pradeep Agarwal cites, “The secondary market for G-Secs is not entirely mature and as a result it declines the fluidity of G-Secs. In comparison to other classes of assets, the yield or income alleviated is quite less. Most importantly, G-Secs are the long-term investment implements that tend to lose value over time. 

Presently, a number of government securities are held by banks but if the demand for credit catches up, it is possible for banks’ holding to witness possible reduction. The expert informs, “The management of debt draws significant challenges, in case the government securities become market-oriented because of diversified investor base. 

The scheme won’t be an accomplished masterwork it is expected to be if both, the government and the RBI, with their joint efforts are unable to remove the bottlenecks of the scheme. The diversified investors being able to access government bonds is a gratifying step, it still needs to be followed up by full bond market integration.