Retail Direct Scheme RBI - Overview, Importance & Eligibility | Testbook

Retail Direct Scheme – An Overview

1. The Retail Direct Scheme by RBI allows retail investors to open retail direct gilt accounts (RDG) directly with the central bank.
2. A Gilt Account is an account opened and maintained for holding Government securities by an entity or person. It is similar to a bank account, but instead of money, the RDG account is credited or debited with treasury bills or government securities.
3. The scheme is part of continuous efforts to increase retail participation in government securities and improve ease of access for retail investors through online access to both primary and secondary government securities market. You can learn about the Difference between Primary and Secondary Market here.
4. The aim of the RBI with this scheme is to democratize the ownership of government debt securities beyond banks and pooled resource managers such as mutual funds.
5. Under this scheme, retail investors will be able to open and maintain the ‘Retail Direct Gilt Account’ (RDG Account) with RBI. Retail investors are non-professional investors who buy and sell securities or funds that contain a basket of securities such as mutual funds and Exchange Traded Funds (ETFs).
6. Government securities for this scheme include securities issued in the form of stock by credit to the SGL/CSGL account maintained with RBI as defined under Section 3(iii) of Government Securities Act 2006. These include:
   • Government of India Treasury Bills ; (Central Government issues both treasury bills and bonds or dated securities).
   • Government of India dated securities;
   • Sovereign Gold Bonds (SGB);
   • State Development Loans – SDLs (bonds and dated securities issued by the State Government).

What are Government Securities? A tradable instrument issued by the Central or State Government. It is often referred to as G-Sec. It carries no risk. Short Term G-Sec (Treasury Bills) with original maturity of less than one year. Long Term Government Security (Govt bonds or dated securities) with original maturity of one year or more than one year.

Scope of the Retail Direct Scheme

The 'RBI Retail Direct' is a comprehensive scheme that provides retail investors with the following facilities in the government securities market through an online portal:

• Open and maintain a ‘Retail Direct Gilt Account’ (RDG Account)
• Access to primary issuance of Government securities
• Access to NDS-OM, RBI’s electronic order matching system for trading in Government securities in the secondary market. The RBI introduced the NDS-OM in August 2005.

Eligibility for RBI Retail Direct Scheme

Retail investors can register under the Scheme and maintain a RDG Account if they have the following:

1. A Rupee savings bank account maintained in India;
2. A Permanent Account Number (PAN) issued by the Income Tax Department;
3. Any Officially Valid Document (OVD) for KYC purpose;
4. A valid email id; and
5. A registered mobile number.

Non-Resident retail investors eligible to invest in Government Securities under the Foreign Exchange Management Act, 1999 are also eligible under the scheme. The RDG account can be opened singly or jointly with another retail investor who meets the eligibility criteria.

Significance of Retail Direct Scheme in India

1. The Retail Direct Scheme has the potential to tap into a vast pool of domestic savings, which could revolutionize India’s investment market.
2. The scheme simplifies the process of trading in government securities for small investors, leading to increased retail participation in G-Secs and improved ease of access.
3. This initiative, along with the relaxation in mandatory Hold To Maturity provisions, will facilitate the smooth completion of the government borrowing programme in 2021-22.

Other Measures to Increase G-Secs Investment by Retail

• Stock exchanges act as aggregators and facilitators of retail bids.
• The introduction of non-competitive bidding in primary auctions allows bidders to participate in the auctions of dated G-Sec without having to quote the yield or price in the bid.
• The permission of specific retail segments in the secondary market.

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