RBI Brings Hassle-Free Trading In Government Bonds For Retail Investors

On 30 July 2021, Friday, the Reserve Bank of India announced that trading in government bonds will become a more simplified process for retail investors. Soon, they’ll be able to open a Retail Direct Gilt (RDG) account with the Central Bank to buy and sell the securities directly. 

Furthermore, retail investors can put in bids for government bonds in primary auctions similar to large institutions. 

It is not yet known when the Central Bank would implement this. However, RBI has disclosed various details concerning the same. Let’s delve into them. 

Who Are The Eligible Investors?

Resident, as well as non-resident retail investors, are eligible to open an RDG account with RBI to invest in government bonds. However, they need to have a savings bank account, a working phone number, and a valid email address. Furthermore, retail investors have to submit the following documents to open the account:

• PAN card issued by the Income Tax Department 
• KYC documents 

In case an individual doesn’t fulfil the eligibility criteria, he/she can open an account jointly with another retail investor who does.

Next, take a look at how individuals can open an RDG account. 

Steps to Open RDG Account 

Retail investors can complete the registration process and open an RDG account by following these steps:

• Visit RBI’s official website 
• Fill in the dedicated RDG account form available on the online platform
• Submit all the necessary information 
• Authenticate the details with the OTP received via SMS and email to complete the registration process

Following the completion of registration, individuals will receive instructions to access the web portal via SMS or email. 

Associated Fees and Charges

Here are the fees and charges in relation to an RDG account:

• Account Opening Fees: Not applicable
• Account Maintenance Charges: Not applicable 

• Fees To Put In Bids In Primary Auctions: Not applicable 

However, investors will need to pay fees/charges that are associated with payment gateways as well as other services. 

Registered users can subscribe to the primary issuance of government-backed financial instruments and access the NDS-OM via the online portal. 

They’ll be able to invest in the following options:

• Government of India dated securities 
• Sovereign Gold Bonds (SGBs)
• Government of India Treasury Bills 

How To Buy Government Bonds?

Before this new process is implemented by RBI, investors can purchase government bonds in the following ways:

• Mutual Funds: This is one of the most common routes for retail investors when it comes to investing in government bonds. For example, one can choose to allocate funds to a gilt fund which would further invest the fund corpus in the securities. 
• Banks And Post Offices: Investors can allocate their funds to government bonds via banks and post offices. Once all documents, such as PAN Card, Address proof, and such, are verified, they would receive their bond certificate. 

• Web And Mobile-based Applications: Investors can purchase government bonds through web and mobile-based applications like National Stock Exchange’s NSE goBID.

One of the primary drawbacks of government bonds is low returns. Thus, for investors who are looking for higher returns than these securities, opting for corporate bonds can be an ideal alternative. Individuals can invest in them or any other avenue like PMS or digital gold  to fulfil their investment objective. 

Bottom Line 

With the process to purchase government bonds becoming simpler, investors can soon invest in these securities without any hassle. However, before one chooses this option, it’s essential to analyse the pros and cons and decide whether the investment is in line with their financial goals.