Retail Direct Scheme

Subject: Economy

Context: RBI revealed a new scheme

Content:

Retail Direct Schemes:

The Retail Direct Scheme, small investors can now buy or sell government securities (G-Secs), or bonds, directly without having to go through an intermediary like a mutual fund.
It is similar to placing funds in debt instruments such as fixed deposits in banks. However, the same tax rules apply to income from G-Secs.
The Government being the borrower, there is a sovereign guarantee for the funds and hence zero risk of default. Also, government securities may offer better interest rates than bank fixed deposits, depending on prevailing interest rate trends.
Investors wishing to open a Retail Direct Gilt account directly with the RBI can do so through an online portal set up for the purpose of the scheme.
The investors will be permitted to buy securities either in the primary market or in the secondary market. The minimum amount for a bid is ₹10,000 and in multiples of ₹10,000 thereafter.
Retail participants would be bidding for the securities under the non-competitive segment of primary auctions of Government Securities and Treasury Bills.

Significance:

The scheme would help broaden the investor base and provide retail investors with enhanced access to the government securities market — both primary and secondary.
It is a major structural reform placing India among select few countries which have similar facilities
It would facilitate smooth completion of the Government borrowing programme in 2021-22.
It will also reduce crowding of private investments Government accessing retail investors could be the freeing up of room for companies to mop up funds from institutional investors; funds that may otherwise have been cornered by the government to fund its expenses.