RBI Retail Direct Scheme for Investors: The Definitive Guide (2023)

The RBI Retail Direct Scheme is an initiative by the Reserve Bank of India (RBI) to provide retail investors an option to invest in government securities or G-secs directly. This scheme allows investors to open a gilt security account, i.e., a Retail Direct Gilt (RDG)” account with RBI to buy and sell government securities.

It was introduced to democratise retail participation in India’s bond markets. With this measure, regular investors do not have to invest via third parties such as mutual funds and brokers.

Keep reading to understand the RBI Retail Direct Scheme in detail and know its interest rates, benefits, how to open the RDG account, its charges, and how to buy and sell g-sec with this online portal.

What is the aim of the RBI Retail Direct Scheme?

The scheme aims to promote financial inclusion by enabling small investors to invest in G-secs, considered safe and secure investment options.

Retail investors had to invest via intermediaries such as banks, brokers, or depositories to invest in G-secs. The goal of the RBI Retail Direct Scheme is to eliminate these intermediaries and provide a simple, cost-effective way to invest in government securities.

Features of the RBI Retail Direct Scheme

• Eligibility: Any individual investor who is a resident of India can participate in the RBI Retail Direct Scheme. Investors can apply for the scheme through their bank or the online portal of the RBI.
• Investment options: The scheme offers a variety of investment options, including short-term and long-term government securities, treasury bills, and state development loans. Investors can choose the best option that suits their financial goals and risk appetite.
• Investment Amount: The minimum investment in the scheme is Rs. 10,000, and the maximum investment is Rs. 2 crores per security.
• Interest rate: The interest rate for the RBI Retail Direct Scheme is determined by the auction process, where investors bid for the securities. The interest rate is fixed for the entire security tenure and paid semi-annually or annually.
• Tenure: The tenure of the securities offered under the scheme ranges from 1 year to 40 years.
• Liquidity: The scheme offers high liquidity as investors can sell their securities on the stock exchange. Moreover, the securities can also be used as collateral for loans.

Benefits of the RBI Retail Direct Scheme

• Safe and secure: Government securities are considered secure investments as the government of India backs them. Hence, investors can be assured of the safety of their investment as these are risk-free and carry no credit risk.
• Higher returns: The interest rates offered by government securities are generally higher than other fixed-income investment options like fixed deposits and savings accounts. Moreover, the scheme provides higher returns than regular government securities due to the absence of intermediaries.
• Easy access: The RBI Retail Direct Scheme makes accessing G-secs easier for retail investors. Investors can apply for the scheme through their bank or the online portal of the RBI.
• Low-cost investment: The scheme has no entry or exit fees; hence, the investment cost is lower than other investment options.
• Diversify portfolio: Investments in G-secs would help diversify the portfolio and reduce the risk for retail investors.
• Zero charges: Retail Direct Account is completely free of charge and does not involve any intermediary. It would reduce overall transaction charges for individual investors regarding the charges they are otherwise required to pay for investing through aggregators or taking indirect exposure through mutual funds.

What is a Retail Direct Gilt (RDG) Account?

Under this Scheme, individual retail investors are required to open a “Retail Direct Gilt (RDG)” account with RBI; this account is opened and operated entirely free of charge. Using this account, retail investors can directly trade in government securities through a facility of an online portal.

Opening an RDG account will allow you to buy Government securities directly in the primary market (auctions) and buy/sell G-secs in the secondary market.

Who can open an RDG Account?

The Retail investors, in this context, refer to natural persons who can meet the following requirements can open an RDG Account:

• They have a rupee savings bank account in India.
• They possess a Permanent Account Number (PAN) the Income Tax Department issued.
• They can provide any official valid document (OVD) for KYC purposes.
• They have a valid email ID.
• They have a registered mobile number.

Non-resident retail investors eligible to invest in Government Securities under the Foreign Exchange Management Act of 1999 can also participate in the scheme.

An eligible retail investor can open an RDG account singly or jointly with another retail investor fulfilling the eligibility criteria.

How to open an RDG Account?

There are five steps involved in opening an RDG account.

Step 1: Applicant is required to log in to the website – https://rbiretaildirect.org.in and initiate the registration process.

Step 2: Here, one must furnish the basic details like the applicant’s full name, PAN, email address, mobile number and date of birth. The applicant’s email ID and mobile number are authenticated using an OTP (One Time Password) process. Then, a reference number would be provided to track the application.

Step 3: Know Your Customer or KYC verification process is the next step which can be done through the central KYC option or video KYC.

Step 4: As a next step, the customer must provide the nomination details. The application allows up to two nominees, which can be altered later via the portal.

Step 5: The applicant’s Rupee Savings Bank Account is linked with the RDG account. This is done by crediting the applicant’s savings account with a token amount and verifying the same.

This step is vital because the Savings account is where all the funds arising from the purchase or sale of G-sec will be settled in addition to all periodic coupon payments and redemption amounts.

Further, once the KYC is successful, the login ID and password will be mailed to the applicant.

In Which Government Security Can I Invest via RBI Retail Direct Scheme?

There are four main types of securities that people can invest in via the RBI Retail Direct platform:

Government of India Dated Securities

Also called Dated G-Secs, they are long-term debt instruments issued by the Government of India to raise funds for a long tenure. These carry a fixed or floating coupon rate, paid semi-annually and term ranging from 5 years to 40 years. You can start investing in these securities with a minimum of ₹10,000 with no upper limit.

Government of India Treasury Bills

These are short-term debt instruments issued by GoI to raise funds for a short time frame. Treasury Bills or T-Bills are zero-coupon securities, meaning they do not pay any interest but are issued at a discount and redeemed at face value. The three common tenures for T-bills are 91 days, 182 days and 364 days. The minimum investment amount in a GOI T-bill is ₹25,000.

State Development Loans

These are long-term dated securities issued by State Governments in our country which help them borrow funds for one year or more. The minimum amount required to start investing in an SDL is ₹10,000, and the investment tenure is 10 years.

Sovereign Gold Bonds

SGBs are government securities denominated in grams of gold and are suitable substitutes for physical gold. The minimum investment is the equivalent of 1 g of gold, while the maximum investment is 4 kg for individual investors. The investment tenure is 8 years, and you will receive 2.5% p.a. interest until maturity.

Facilities available on RBI Retail Direct Portal

The portal will enable the following:

• Onboarding of retail investors into the scheme.
• Opening and management of RDG accounts.
• Facilitation of participation in Non-Competitive Bidding (Non-Competitive Bidding is introduced to increase the participation of retail investors where retail investors apply for a certain amount of securities in an auction without mentioning price/yield, and they are allotted securities at the weighted average price/yield of the auction) in Primary Government Securities Auctions through the Clearing Corporation of India (CCIL).
• Facilitation investing in Sovereign Gold Bonds (SGBs) through CCIL.
• Facilitation of NDS OM access to Retail Direct Investors for secondary market trading, with the settlement of such trades through CCIL.
• Provision of investor services such as account statements, nomination facility, Pledge/Lien, and Gift Transactions.
• Facilitation of corporate actions such as coupon payments.

Steps to Buy and Sell Securities through the Retail Direct Platform

How to Buy G-sec?

There are two ways of buying G-secs:

Method 1: Place a bid in the primary market auctions.

Primary auctions are done on different days of the week for instruments like dated G-secs, T-bills and SDLs. This process happens through the platform, and an individual needs to fund their bid before closing the bidding or the subscription window to avoid cancellations.

Method 2: Place a quote in the secondary market portal.

This method works like buying shares through an online trading account.

How to Sell Government Securities?

Investors who hold these securities in their account can place a sell order in the secondary market portal, and if someone purchases it, the value is reduced from the seller’s account. The realised money is then credited to the seller’s bank account. 

How does secondary market settlement happen?

The settlement process for trades executed by Retail Direct Investors through the RBI Retail Direct scheme. The following points summarise the settlement process:

1. Transactions executed by Retail Direct Investors will be settled through CCIL*.
2. Settlement of trades will occur on T+1 day.
3. Securities purchased by Retail Direct Investors will be credited to their RDG account post-completion of settlement on the settlement date.
4. Funds received from the sale of securities will be credited to the Retail Direct Investor’s registered bank account after the completion of settlement on the settlement date.
5. If the funds remitted by the Retail Direct Investor through the Payment Gateway are not received by CCIL, the securities purchased by the Retail Direct Investor may only be credited to their RDG account once CCIL receives the funds.
6. Suppose a seller fails to deliver the securities a Retail Direct Investor purchased. In that case, the funds the Retail Direct Investor remitted will be refunded to them on the settlement day.

*CCIL, known as Clearing Corporation Of India Ltd., is authorised by the Reserve Bank of India to act as an aggregator for Primary Issuances and as Receiving Office for Sovereign Gold Bonds For Retail Direct Investors. RBI also authorises CCIL to operate the NDS OM platform**

**To enable institutional investors to trade in government securities transparently, the Reserve Bank of India (RBI) introduced the Negotiated Dealing System-order matching (NDS-OM) in August 2005. It is an electronic, screen-based, order-driven trading platform designed exclusively for government securities. The platform is owned by RBI but is maintained by the Clearing Corporation of India (CCIL).

What Are the Limitations of RBI Retail Direct Schemes?

There are certain factors that people must keep in mind:

• Government securities are long-term debt instruments that carry a high-interest rate risk. If Arun purchases a long-term bond with an interest rate of 8%, the value of the bond will reduce if the market rate increases. If investors hold the bond for an extended period, they will become subject to greater interest rate risk.
• Though RBI Retail Direct Scheme can improve people’s participation in G-sec, the procedure is not as smooth or straightforward as equities.

Other Important Points to Remember about RBI Retail Direct Scheme

Given below are specific crucial points related to RBI Retail Direct Scheme: 

1. Retail investors can avail of a loan against securities in the RDG accounts.
2. Retail investors can gift government securities to other retail investors. 
3. Registered users can even name their loved ones as nominees. They can name a maximum of two nominees. In case of an unfortunate death of a registered investor, their securities will be transmitted to the nominees’ RDG account after submission of the transmission form and death certificate. 
4. The online portal will display an account statement detailing the balance position of the securities and the transaction history of RDG accounts. People will receive transaction alerts through SMS/emails. 
5. People can submit complaints and queries about the Retail Direct Scheme on RBI’s official portal. They need to address it to RBI’s Public Department Office in Mumbai. 

In case of any complaints, you can connect here:
Toll-free phone number: 1800 267 7955 (between 9 am and 7 pm on any working day).
E-mail id: support@rbiretaildirect.org.in
Raise a request on the Retail Direct portal.

Final Word

To sum up, the Reserve Bank of India launched the RBI Retail Direct Scheme in 2021 to enable investors to purchase and sell Government securities online in primary and secondary markets. RDG accounts make investing in government bonds more affordable and secure.
Investors should use this platform as it is a safe and secure platform that can help diversify your investment portfolio. However, these securities offer limited returns, so you should assess your financial requirements before investing in these funds

Frequently Asked Questions (FAQs)