RBI Retail Direct Scheme : Look Before you Leap!
Recently, Prime Minister Narendra Modi launched the Reserve Bank of India (RBI) Retail Direct Scheme (RDS). Through this scheme, individual retail investors now have direct access to buy and sell government securities.For this they have to open and maintain retail direct gilt (RDG) account at rbiretaildirect. org.in. There are no charges or fees for opening or maintaining the RDG account. Earlier, retail investors had to go through mutual funds to get exposure to gilts or government securities but now through this scheme they can directly engage in buying and selling. This looks quite attractive as investors can now earn now more than what they are currently getting on their bank fixed deposits without any credit risk.
Within one day of opening up the scheme more than 12,000 investors got themselves registered. Should you also open an account and start investing? I believe investing in bonds is not that easy as fixed deposits. There are various factors such as fluctuation in interest rate that will impact your return if you are not holding your investment till its maturity. Nevertheless, if you are willing to remain invested till the maturity of the instruments, whose duration may vary from one year to 30 years, it is a good avenue to invest that part of your asset that you want to put in fixed income securities.
If you want to invest in government securities without troubling yourself about timing the entry and exit, you can choose the duration of investment that matches your investment goal. Thus, if you are investing to buy a home after three years, you should invest in government securities with three years’ maturity and hold it till the end. This will give you a predictive return without any capital loss. The introduction of RDS is a step in the right direction to deepen the bond market and also give retail investors a new investment instrument if not asset class to invest. Nonetheless, it is suggested only for those who understand the nuances of investing in government securities.