Will RBI's Retail Direct scheme spur retail investor interest in bonds?

 The RBI has launched RBI-RD, allowing retail investors to directly invest in govt securities. Will this make the bond market exciting for retail investors? Analysts seem cautious

On November 12, Prime Minister Narendra Modi launched the Reserve Bank of India Retail Direct Scheme to provide retail investors an opportunity to invest in government securities (G-Secs) in a hassle-free manner.

Under the scheme, retail investors can buy G-Sec directly and free of cost. This is in contrast to the existing mechanism, wherein investors could buy government securities through gilt mutual funds.

Another alternative was to buy it through G-Sec dealers who would place it in RBI’s primary market auction, held every Friday. But if you want to buy existing G-Secs listed in the secondary market, you can buy them from the BSE and the NSE.

However, low level of awareness, procedural issues and low liquidity in the secondary market were some of the reasons why investors stayed away from investing in G-Secs.

So, will this new scheme spur small investors’ interest in bonds?

Independent market analyst Ambareesh Baliga said:

RBI-RD was a long-term need of retail investors
Don’t expect a rush in G-Sec investing
Suitable for those looking for capital safety, steady returns

For Nitin Shanbhag, Senior Group Vice-President - Investment Products at Motilal Oswal Private Wealth, RBI-RD will open the door for retail investors to participate in G-Secs. He said: “The G-Sec market is dominated by institutional investors like banks, insurance companies, mutual funds, etc with lot sizes of Rs 5 crore and higher. Hence, this segment was largely inaccessible to retail participants. The RBI Retail Direct Scheme will enable retail investors to participate in G-Secs across various tenors with flexible investment horizons and with the ability to get regular cash flows through risk-free coupons.”