A reform by RBI, but should you invest?
A revolutionary step by the RBI to enable access for retail investors to invest in Government Bonds.
But, should you invest in these?
Not really. Here's why -
Some background-
Government bonds like Treasury bills, G-Secs have been out of reach for many of us. RBI has now allowed retail investors to trade in government bonds directly. How?
RBI Retail Direct: It is a scheme to increase retail participation in govt securities.
You can now open this gilt account with the RBI online. Using this Retail Direct Gilt account, you can apply to the primary issue (think IPO) of Govt Securities. Also can invest from as low as ₹10,000.
BUT - Should you invest?
Not really. Why?
1) Well there are better alternatives with higher return and even lower risk. (Check the image attached)
2) Higher Taxation-
The interest you earn on these bonds will taxed according to your slab rates, as opposed to LTCG tax, if you buy the same bonds through mutual funds and hold them for more than a year.
3) Low Liquidity -
RBI has allowed retail investors access to its Negotiated Dealing System (NDS)-Order Matching (OM). Ordinarily, government bonds on this system are transacted in lots of ₹5 crore. However, RBI has given individuals access to the ‘odd lot’ segment on which bonds of less than ₹5 crore can also be traded. The minimum investment size for government securities has been set at ₹10,000 by RBI in this odd lot segment. You can sell bonds on NDS-OM before maturity. But liquidity in this ‘odd lot’ segment tends to be poor.
Hence, you can stick to your traditional sources of investment.
Cheers!
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