Note4Students

From UPSC perspective, the following things are important :

Prelims level: G-Secs

Mains level: Not Much

The RBI has announced a scheme under which retail investors will be allowed to open retail direct gilt accounts (RDG) directly with the central bank.

The scheme is a one-stop solution to facilitate investment in government securities (G-secs) by individual investors.
Under RDG schemes, accounts can be opened through a dedicated online portal, which will provide registered users access to primary issuance of government securities and to NDS-OM.

A “Gilt Account” means an account opened and maintained for holding Government securities, by an entity or a person including ‘a person resident outside India’ with a “Custodian” permitted by the RBI.

Treasury bills (T-Bills) – short-term instruments which mature in 91 days, 182 days, or 364 days, and
Dated securities – long-term instruments, which mature anywhere between 5 years and 40 years

Note: T-Bills are issued only by the central government, and the interest on them is determined by market forces.

Like bank fixed deposits, g-secs are not tax-free.
They are generally considered the safest form of investment because they are backed by the government. So, the risk of default is almost nil.
However, they are not completely risk-free, since they are subject to fluctuations in interest rates.
Bank fixed deposits, on the other hand, are guaranteed only to the extent of Rs 5 lakh by the Deposit Insurance and Credit Guarantee Corporation (DICGC).

Small investors can invest indirectly in g-secs by buying mutual funds or through certain policies issued by life insurance firms.
To encourage direct investment, the government and RBI have taken several steps in recent years.
Retail investors are allowed to place non-competitive bids in auctions of government bonds through their Demat accounts.
Stock exchanges act as aggregators and facilitators of retail bids.

Retail Direct Scheme for G-Secs

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