We have heard of institutions dealing with government securities at various stages and many retailers wanted to invest or trade in them. RBI heard the requests of retailers and has come out with the following scheme, just yesterday.

Let us learn the epoch- making development in detail.

The highlights of the ‘RBI Retail Direct’ scheme are:

i. Retail investors (individuals) will have the facility to open and maintain the ‘Retail Direct Gilt Account’ (RDG Account) with RBI.

RBI Retail Direct Scheme – Gilt accounts

ii. RDG Account can be opened through an ‘Online portal’ provided for the purpose of the scheme.

iii. The ‘Online portal’ will also give the registered users the following facilities:

a. Access to primary issuance of Government securities

b. Access to NDS-OM.

Let me explain the rudiments of the scheme.

How does a retailer gain by this scheme?

As retailer can do the following activities with government securities. (It is pertinent to note that till yesterday, one retailer must go through the financial institutions to carry out this activity. Yes, it was considered exotic to buy/sell these government securities and financial institutions rarely helped a retailer to navigate this process). As an individual investor, one is sure of its payments and it is safe, movements of its values are market based, and one feels really participating in the development of the nation. Yes, it makes one proud to help the government by this step.

What is a government security?

Government securities are those which are those issued in form of stock by credit to SGL/CSGL account maintained with RBI as defined under Section 3(iii) of Government Securities Act 2006.

These include:

i. Government of India Treasury Bills.

ii. Government of India dated securities.

iii. Sovereign Gold Bonds (SGB).

iv. State Development Loans (SDLs).

Who is a retail trader?

One who can open and maintain a RDG account with the following requirements:

  • Rupee savings bank account maintained in India
  • Have a permanent account number issued by Income tax department
  • Any OVD for KYC purposes. (OVD means Officially Valid Document defined under RBI-Know Your Customer (KYC) Direction, 2016, as amended from time to time)
  • Valid email id and registered mobile number.

What about a non-resident retail investor?

Those who can invest in Government Securities under Foreign Exchange Management Act, 1999 are eligible.

Yes, your presumption that the above RDG account can be opened or jointly with other who is equally eligible to open this account.

Let me introduce you to the procedure.

Registration (reproduced from main communication)

i) “Investors can register on the online portal by filling up the online form and use the OTP received on the registered mobile number and email id to authenticate and submit the form.

ii) Instructions issued under RBI-Know Your Customer (KYC) Direction, 2016, updated from time to time, will be adhered to during onboarding the investors. Upon successful registration, ‘Retail Direct Gilt Account’ will be opened and details for accessing the online portal will be conveyed through SMS/e-mail.

iii) RDG Account shall be used for primary market participation/ secondary market transactions on NDS-OM.”

How does one learn about primary market participation? Like non-competitive scheme for participation in primary auction of government securities and procedural guidelines for SGB issuance–allotment of securities will follow the same procedure. One bid for per security when submitted for bid will display the total amount payable on the screen.

Payment to the aggregator / receiving office will be made through either of the following ways:

Either using the net-banking/UPI facility from the linked bank account, whereby funds will be debited at the time of submission of bids on the portal or using the UPI facility, whereby funds in the linked bank account can be blocked at the time of submission of bids on the portal which will be debited from this account on successful allotment in the auction.

It is not surprising to know that refund will get automatically credited to the bank account and allotted securities get automatically credited in RDG account.

Secondary market transaction-NDS-OM

One learns that registered investors will access the secondary market transaction link on the online portal to buy or sell government securities through NDS-OM (odd lot segment/RFQ).

Now that some basics have been learnt, it is time to learn how to “buy or sell.”

Let us start with “buy”.

How to buy and is it easy and convenient for a common man?

Yes, one needs to make payment of money before the operations for buying start.

  • Sufficient funds should be transferred either during the day/before trading hours to the designated account of CCIL (Clearing corporation of NDS-OM) using net-banking/UPI from the linked bank account.
  • Based on actual transfer/success message, a funding limit (Buying Limit) will be given for placing ‘Buy’ orders.
  • It is a simple knowledge that at the end of the trading session, any excess funds lying to the credit of the investor will be refunded.
  • Alternately, UPI facility entitles one to block linked bank’s account at the time of placing the order to be debited at the time of settlement.
  • Yes, you are right with the assumption that you will get the securities credited in your RDG account if the settlement goes through

Buy

ix) Payment can be made through either of the following ways:

a. Before start of trading hours or during the day, the investor should transfer funds to the designated account of CCIL (Clearing corporation of NDS-OM) using net-banking/UPI from the linked bank account. Based on actual transfer/success message, a funding limit (Buying Limit) will be given for placing ‘Buy’ orders. At the end of the trading session, any excess funds lying to the credit of the investor will be refunded.

b. Using the UPI facility, whereby funds in the linked bank account can be blocked at the time of placing order which will be debited from this account on the day of settlement. Similar facility through banks will be made available in due course.

x) Securities purchased will be credited to the RDG Account on the day of settlement.

Sell

xi) Securities identified for sale are blocked at the time of placing order till the settlement of the trade.

xii) Funds from the sale transactions are obviously credited to the linked bank account on the day of settlement.

Non-Trade transactions – Value Free Transactions (VFT)

xiii) Transactions permitted under VFT guidelines issued by RBI on November 16, 2018,  are applicable to retail investors – hence retail traders can get full knowledge before venturing into government securities.

Online portal must be used for all transactions.

Before we conclude, why not learn about investor services?

Only online portal can be of use for the following activities:

1. Transaction history and balance position of securities holdings in the Retail Direct Gilt Account are to be obtained from the link provided. All transaction alerts are sent through e-mail/SMS.

2. What about nomination facility? Maximum two nominees can be allowed for the nomination purposes and expectedly, in case of death of registered investor, the nominees can perform the routine procedure like providing of death certificate and transmission form.

3. The securities under RDG account will be transferred to the nominees RDG account or any other government securities account.

4. The securities in RDG account are eligible for pledge/lien purposes.

5. Yes, gifts of securities by retail direct investors to other retail direct investors are allowed.

Let me also deal with investor complaints/ grievance redressal, if any.

The following procedure is available.

Any query or grievances related to ‘Retail Direct’ Scheme are raised on the portal which will be handled/resolved by Public Debt Office (PDO) Mumbai, RBI.

Is it expensive to maintain the above discussed retail account with RBI?

Let me input from the communication direct.

Fee and charges

a. No fee will be charged for opening and maintaining ‘Retail Direct Gilt account’ with RBI.

b. No fee will be charged by the aggregator for submitting bids in the primary auctions.

Fee for payment gateway etc., as applicable, will be borne by the registered investor.

General discussion

Let us admit that it is not RBI, the only body which has initiated this procedure of opening of retail direct account for individuals or joint account holders.

With a click of payments even for pan, travelling, eating in restaurants, or for major purchases of shares/debentures etc., RBI did the long- required demand of enabling direct retail trade in government securities or bonds.

There was a perception among the intelligentsia that the recent boom in stock markets was due to foreign institutions and its collapse after the effect of pandemic or nil revival immediately thereafter were ruled out by newspapers or other media.

Fortunately, the pandemic enabled a retail customer to learn the nuances of share market and enhance the capital market multiple times. The economy seems to have reached the before pandemic level under several sectors. India ranks among major powers with its economic revival.

The above argument of mine portends a bright future for a simple retail investor to open a simple RDG account, buy/sell government securities, and indulge in profitable investing cycles.

India has shown its maturity in investment recently, withstood the rigors of the market demands, and is leading the world in direct investment.

Though it looks like a complicated matter from the outset, direct investment in government securities augurs well for a simple Indian style investment since it is fully secured. Unlike many countries, its capacity to pay back its debts has been tested several times and it has proven its credibility.

Being an ardent votary of retail trade in government securities at a common man level, like fixed deposit accounts, I visualize a boom under this type of investments and who knows the government may totally depend on the retailers for the industrial growth of the nation.

The rural Indians need some guidance and will overtake the urban ones in government- based securities transactions also. Recent rural sales have increased multifold and big MNCs are banking upon rural market for enhancement in sales. Most of the sales from online portals.

The full credit goes to RBI which has simplified the procedure of buying or selling of government securities.

Reference

Launch of RBI-Retail Direct Scheme and Reserve Bank- Integrated Ombudsman Scheme by Hon’ble Prime Minister on November 12, 2021

*****

RBI Website: https://www.rbi.org.in/Scripts/BS_PressReleaseDisplay.aspx?prid=52550

Disclaimer: The contents of this article are for information purposes only and do not constitute an advice or a legal opinion and are personal views of the author. It is based upon relevant law and/or facts available at that point of time and prepared with due accuracy & reliability. Readers are requested to check and refer relevant provisions of statute, latest judicial pronouncements, circulars, clarifications etc. before acting because of the above write up. The possibility of other views on the subject matter cannot be ruled out. By use of the said information, you agree that Author/TaxGuru is not responsible or liable in any manner for the authenticity, accuracy, completeness, errors, or any kind of omissions in this piece of information for any action taken thereof. This is not any kind of advertisement or solicitation of work by a professional.

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Qualification: Post Graduate
Company: subramanian natarajan cpa firm
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Member Since: 09 May 2017 | Total Posts: 189
A banker with 27 years of experience, a CPA from USA with specialization in US taxation, individual, partnership, S corporation or LLC taxation etc View Full Profile

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