From August 16, retail investors will be able to buy and sell government securities (G-Secs) directly, just as they trade in stocks. The Reserve Bank of India (RBI) has asked members of the regulator's debt securities platform to put the required infrastructure in place to let retail investors buy and sell G-Secs and treasury bills (T-Bills).
G-Secs are long tenure bonds that can have a tenure up to 30 years. T-Bills are issued for tenures of 91 days, 182 days and 364 days.
Many high net worth individuals have been trading in G-Secs, as these are the safest debt instruments backed by the sovereign guarantee. They are also more tax-efficient than putting money in a bank fixed deposit.
Until now, if a retail investor wanted to buy G-Secs, he had to approach a broker. They can now access RBI's Negotiated Dealing System-Order Matching (NDS-OM) by requesting their banks. The banks need to be members of RBI's platform and also depository participants. NDS-OM is an electronic, screen-based, order-driven trading platform, designed exclusively for government securities. The platform is owned by RBI and maintained by the Clearing Corporation of India.
RBI is yet to publish the final guidelines. Institutional investors pay a brokerage of around 0.01 per cent on each trade. However, retail investors won't enjoy such a low fee. Banks and brokers say that the fee could be 0.5 to 1 per cent.
Experts feel that this move will help develop India's bond market. During the initial days, investors need to be cautious about the price they pay. As the market is dominated by brokers and institutions, they could end up buying at a high price and selling low, until a significant number of small investors come to the platform.