RBI recently announced that it will soon launch a platform called Retail Direct. Through this, retail investors will be able to invest directly in government securities in both primary and secondary markets. Explain that government securities are a type of debt securities. The RBI issues on behalf of the central government. Their maturity period ranges from a few days to 40 years.
However, the guideline related to Retail Direct has not come yet. This is not the first time RBI is trying to attract retail investors to invest in government securities. There have been similar efforts before this, but they have not received good response. Let us try to know what are government securities, whether or not we should invest in them and what are their other options?
What is unique about government securities
Security – Since these are guaranteed by the central government, they are quite safe. There is no credit risk in this. However, there is an interest rate risk associated with them. Their price fluctuates with interest rate fluctuations. The prices of government securities are inversely linked to interest rates. So when interest rates are low, their prices rise. Whereas, when interest rates are high, their prices decrease. This risk can be reduced if you hold government securities till their maturity.
Tax Provision – Interest on government securities is fully taxable. After selling it after a year, it attracts long term capital gains at the rate of 10%. If you sell them within a year, then tax is charged on the basis of these marginal tax slabs.
Transaction – The government has already approved the participation of retail investors in the auction of government securities. For this, investors can buy government securities or treasury bills directly in NSE goBID and BSE Direct. There is no need to open a separate account for this. Investors can buy it only through their current trading account.
Retail investors can also invest in government securities through the RBI trading platform. However, due to lack of information and low liquidity, it was not very popular. Vikram Dalal, managing director of Synergee Capital Services, says that if the RBI is able to ease investment through government securities’ liquidity issues and new platforms, it can be a very good investment option.
Should we invest in government securities?
Government Securities are a good investment option for retired people and people who want to invest their money in a low-risk instrument for a long period. It also keeps getting interest from time to time. However, many experts say that there is a lack of liquidity in the retail segment. Therefore, investors are advised to invest in government securities only if you wish to hold it till its maturity.
Since there is almost no risk. Therefore, interest is less in comparison to other investment options. For example, 10-year government securities are considered a benchmark. If we look at its yield, then the current is yielding 6.1 percent.
Other Investment Options
If you want to take some risk then there are other better investment options for you in which there is a little risk but you can get more returns. Such as small saving schemes which include all government schemes. Such as Senior Citizen Saving Scheme, National Saving Certificate and PPF. In the quarter ending on March 31, 2021, they can fetch interest between 6.8 and 7.4 per cent. Similarly, AAA rated CPSE bonds, G-Sec bond funds and RBI floating red bonds are other better investment options in which you can get good returns.
