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A new investment opportunity emerges to conserve wealth



Even if you have a high risk appetite, you should not neglect money conservation or capital conservation.

Many of us relate investing to capital growth or growth of wealth. We give little importance to conservation of wealth. As you know, asset allocation is the cornerstone of investing.

Currently, equity markets are at their lifetime highs. Even if you have a high risk appetite, you should not neglect money conservation or capital conservation. This is more so in situations where the margin of safety in the stock market has reduced.

Suppose you have earned good returns (i.e. money generated) from equity and you are less than three years away from achieving your financial goals. Then it is better to shift your asset allocation to debt instruments and focus on wealth protection.

Doing so will ensure that your assets are well protected in case the stock market fluctuates or falls from its current highs (which is quite possible).

In another scenario, let’s say, your risk appetite has decreased (for whatever reason), you are risk averse, are in the conservation and protection phase of life, are on the verge of retirement, or Already retired.

You would like to earn stable returns with low risk. Then your main focus should be money conservation.

You can say, the interest rates offered on some traditional investments are low and seem unsuitable to invest at the moment.

Yes, of course interest rates have come down significantly.

But investing in government securities can give you good returns with a high degree of protection against credit risk.

You see, Government Securities (G-Secs) include instruments like Central Government Bonds, State Government Bonds, Treasury Bills etc.

Recently, RBI has opened a new investment opportunity for retail investors through its ‘Retail Direct Scheme’. They can now invest directly in Government securities for asset protection through ‘Retail Direct Gilt Account’.

Let us understand the features, benefits and working of RBI Retail Direct Gilt Account.

RBI Retail Direct Gilt Account

To avail the benefits of ‘RBI Direct Scheme’ and invest directly in Government securities, you are required to open and maintain ‘Retail Direct Gilt Account’ (RDG Account) with RBI.

Through an RDG account, you have access to both the primary market (buying government securities directly from the RBI) and the secondary market (buying from other investors at the current market price).

The RDG account can be opened through an ‘online portal’ specially created for the scheme ‘RBI Retail Direct’.
Once you have successfully registered, you have access to:

– Primary issue of government securities

Negotiated Dealing System-Order Matching System (NDS-OM) through online portal.

NDS-OM is a screen-based electronic anonymous order matching system for secondary market trading in government securities owned by RBI.

Thus, as a retail investor, you will be able to invest in Government of India Treasury Bills, Central Government Bonds, State Government Bonds, State Development Loans (SDLs), and Sovereign Gold Bonds (SGBs).

There is no charge for opening and maintaining an RDG account with RBI. You only need to pay a nominal payment gateway fee when trading in G-sec.

Who is eligible to open an RDG account?

Any individual can open a retail direct gilt account provided he/she has an official savings bank account
Verified documents for the purpose of KYC (i.e. PAN, Aadhar, Passport, etc.), a valid email ID and a registered mobile number.

Non-resident retail investors eligible to invest in Government securities under the Foreign Exchange Management Act, 1999 (FEMA), who are also eligible to open an RDG account.

Is joint holding allowed?

Yes. RDG account can be held jointly by you with any other person who fulfills the eligibility criteria for opening an RDG account.

What is the process of opening an RDG account?

This is a very simple process.

Register on the online portal by filling the online form.

Use the OTP received on the registered mobile number and email ID to authenticate and submit the form.

In this process you have to follow KYC (Know Your Customer) guidelines. On successful registration, your RDG account will be opened with details to access the shared account through SMS/e-mail.

Functioning of RDG Account

The RDG account makes it possible to participate in the primary issuance of government securities (i.e. buying government securities directly from RBI) in small lots (eg Rs 10,000).

The participation and allotment of securities in the primary market is in accordance with the Non-competitive Scheme for Participation in Primary Auction of Government Securities and Procedural Guidelines for Issuance of SGBs.

Only one bid is allowed per security, and after the bid is submitted, the total amount payable is displayed. No fee is levied by the aggregator for bid submission in the primary auctions.

Payment for securities purchased only has to be made to the receiving office or aggregator either through net banking or UPI facility linked to the bank account.

On allotment, the securities will appear in the RDG account on the day of settlement. In case of a refund, the money will be credited to your bank account.

To trade in the secondary market, the order has to be placed on the NDS-OM. NDS-OM currently has Request for Quote (RFQ) or Odd Lot segment as the dealing mode available for secondary market trading.

Before the commencement of trading hours or during the day, you will be required to transfer funds from the linked bank account to the designated account of CCIL (Clearing Corporation of India Limited) using Net Banking/UPI.

For buy orders, a money limit (buy limit) is placed. At the end of the trading session, the excess funds deposited in your account are returned. The securities purchased by you will be credited to your RDG account on the day of settlement.

Similarly, when you sell, the securities identified for sale will be blocked until the trade is settled at the time of placing the order. On the day of settlement, the money from the sale will be credited to your linked bank account.

Keep in mind that as an investor when you trade in government securities using an RDG account, you will have to bear a nominal payment gateway fee.

Here are seven key benefits of RBI’s Retail Direct Gilt Account:

1) RDG account provides ease of transacting in Government securities with almost zero default/credit risk.

2) You can transact in smaller lot sizes and trade the securities during the maturity period i.e. 91 days to 40 years.

3) Lets you create, manage and diversify your own G-Sec portfolio as per your liquidity needs.

4) The securities in the RDG account can also be pledged for availing loans in times of need.

5) You also have the online facility to gift government securities to other retail investors.

6) Can keep track of your G-Sec Portfolio with access to your account details.

7) And if you have any queries or complaints, they can be raised on the portal which will be resolved by the Public Debt Office (PDO) of RBI in Mumbai.

Tax implications of RBI’s retail direct scheme

Capital gains earned by selling government securities and sovereign bonds in the secondary markets (before maturity) will be liable to capital gains tax along with indexation gains (if applicable). Whereas regular interest income received from government securities will be taxable as per your income tax slab.

In case of direct investment in Government securities, the capital gain will be calculated by the investor in the securities traded by you in a financial year.

Whereas in case of Gilt Mutual Fund, the capital gain is calculated for the holding period of the mutual fund units, irrespective of the number of trades made by the fund manager while managing the scheme.

to sum up …

If you are a shrewd investor who wants to invest directly in government securities and can manage your portfolio well, then RBI Retail Direct Gilt Account is for you.

However, make sure you understand the Indian debt market thoroughly along with the macroeconomic factors that influence it. RBI’s Retail Direct Scheme is for knowledgeable investors.

While government securities carry no credit/default risk, they can be prone to interest rate risk especially in a rising interest rate scenario. Note that interest rates and bond prices are inversely related, while yields and interest rates are positively correlated.

When you are structuring the portfolio, you need to actively track the interest rate direction and decide the maturity period to buy government securities accordingly.

Ideally, the maturity period of securities should be selected based on their cash-flow requirements and coupon requirements.

If you feel that you lack the skills and time to invest directly in government securities, choose debt mutual fund schemes keeping in mind your risk appetite and investment horizon.

Mutual Funds offer Gilt Funds under different categories like Short to Medium Term Gilt Funds, Constant Maturity Gilt Funds, Target Maturity Gilt Funds etc.

Under Gilt Funds, professional fund managers can actively choose securities as per their expertise and macro-economic outlook. Still, be careful in selecting the best gilt funds that have stood the test of time. Keep in mind that investing in debt funds is not risk free or safe.

Happy investment!

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