Explained: All you want to know about the RBI’s RDS scheme for retail investors


by 5paisa Research Team Last Updated: Nov 16, 2021, 11:29 AM IST

Last week, Prime Minister Narendra Modi inaugurated the so-called Retail Direct Scheme (RDS) of the Reserve Bank of India (RBI) which allows retail investors to invest in government securities, or G-secs. 

The new scheme will let common people invest in G-Secs by directly opening an account with the RBI. This can be done via a new platform called the RBI-RD, which the central bank has launched. 

What sort of securities will the new platform allow people to invest in?

The RBI-RD platform will let people invest and trade in government of India treasury bills (T-bills), government of India dated securities, sovereign gold bonds and state development loans. 

What is the USP of the new scheme? 

The scheme not only offers a simple and easy process to invest in G-Secs, but also puts India in an exclusive club of nations that actually allow democratisation of government debt.

Until now, government paper has been accessible only to financial institutions which trade and invest in high volumes and have extremely high minimum threshold limits of investment.  

So, how can a retail investor actually invest in G-Secs via the new scheme?

To invest in G-Secs, a retail investor needs to open a Gilt account on the RBI-RD portal. This portal also allows people to bid in primary auctions and trade securities in the secondary market. 

How much would the new scheme cost an investor? How can money be remitted?

The new scheme allows people to invest free of charge. Customers can pay for buying G-Secs via internet banking and UPI. 

Will investors get a helpline?

Yes, investors can avail of support via the online portal, on email and on phone. 

But couldn’t small retail investors access G-Secs before this scheme came into vogue?

They could, but not directly. Such securities could only be bought via gilt mutual funds or G-Sec dealers, who participated in the central bank’s primary market auction every Friday. Moreover, existing securities could be traded on the National Stock Exchange and the Bombay Stock Exchange. 

How could the RBI attract more people to avail of the new scheme?

Experts say that one way of attracting new people to participate in the new scheme is by offering tax sops. This, they say could also attract global fintech companies who would want to provide such services in India. 

“If retail taxation of direct debt investments is brought in line with investing through debt funds, we should see some retail interest emerging,” a report by The Economic Times newspaper cited Ananth Narayan, associate professor at SP Jain Institute of Management and Research as saying.

“This could, in turn, attract intermediaries including global and local fintech companies. Also currently, small savings schemes offer much higher rates than GoI securities,” Narayan said.

What are the key challenges facing the new scheme?

For one, retail investors are unaware of G-Secs and how they work, and how investing in such instruments could be beneficial for them. Investors are also not aware of which type of G-Sec they should choose. This is especially true for high-income investors, as the interest on these instruments is fully taxable, as against debt funds like corporate bond funds and gilt funds where an investor can take the benefit of lower tax rates and indexation.  

Another possible problem could be low liquidity, which could hamper trades. The central bank may need to infuse some much-needed liquidity into these instruments, which are otherwise some of the safest vehicles for parking money and taking out steady returns over long periods of time. 

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