Informist, Tuesday, Apr 16, 2024
By Anupreksha Jain and M.C. Adhiinthran
MUMBAI – Nearly two-and-a-half years after its ambitious launch, the Reserve Bank of India's Retail Direct platform aimed at increasing participation of retail investors in the government bond market is yet to really take off due to a complicated settlement mechanism and lack of liquidity, market participants said. Participation in the scheme, launched by Prime Minister Narendra Modi in November 2021, still seems to be paltry.
The platform allows individual investors to directly invest in government securities by maintaining an account with the RBI. Investors can use the platform to buy gilts at primary auctions and on the Negotiated Dealing System-Order Matching Platform.
According to RBI data, the total number of accounts opened under the scheme was 120,626 as on Apr 8 compared with around 111.56 mln demat account holders with Central Depository Services (India) Ltd as on Mar 31.
The cumulative trading volume in the secondary market through RBI Retail Direct was 6.56 bln rupees, while the total primary market subscriptions were 42.77 bln rupees as on Apr 8.
Market participants said one of the main complaints against the scheme is that government bonds are issued in the Subsidiary General Ledger format, rather than a customer's demat accounts. The subsidiary general ledger is a dematerialised form of holding government securities with the RBI, but does not communicate with an investor's common demat account with commercial banks.
"Participants get bonds in SGL (Subsidiary General Ledger) format and not the Demat (Dematerialised) format," Nikhil Bhargav, vice president of fixed income and products at INRBonds, a bond platform, said. "We have a T+3 or T+4 conversion time for the papers as they cannot trade with the subsidiary general ledger format. The cumbersome process is a drawback for retail players."
In the secondary market, retail investor trades are usually done under the odd lot segment of the Negotiated Dealing System – Order Matching platform. All orders whose order size is less than the regular lot size of 50 mln rupees are traded here.
Though the RBI has asked primary dealerships to match buy and sell quotes for liquid securities they own in the odd lot and request for quote segments throughout market hours, primary dealerships offer out-of-market prices for matching retail orders, wiping out most profits for an investor, brokers said.
"Retail investors usually get levels which are lower than market levels (in the secondary market)," Karan Kothari, senior manager at LKP Securities, said. "Anybody who wants to invest in G-sec will have to hold it till maturity because exiting will lead to an immediate loss of 10-12 paise."
Currently, the odd lot renders government securities, especially bonds above 10 years, illiquid as they can't find any buyers, an official on the retail desk of Federal Bank said. Retail investors prefer Treasury bills over gilts as T-bills are short-term and liquid investments, the Federal Bank official said. No wonder, T-bill subscriptions at 28.82 bln rupees accounted for two-third of the cumulative primary market subscriptions as on Apr 8.
Brokers said the current taxation regime for returns makes gilts a poor choice for savvy high net worth individuals who might want to branch out into the asset classes. Investing into debt through mutual funds eases the trading burden for the user and offers similar returns, while attracting a similar tax hit – typically 30%, for investors earning above 1.5 mln rupees a year. With competitive returns available in equities at a 10% tax rate, fixed income investments are naturally sidelined, brokers said.
In a bid to provide greater convenience to retail investors, RBI Governor Shaktikanta Das had announced on Apr 5 that the central bank will launch a mobile app for accessing the Retail Direct portal. However, introduction of an app may not change the appeal of Retail Direct much as the structural problems remain, brokerages said. End
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Informist, Tuesday, Apr 16, 2024
By Anupreksha Jain and M.C. Adhiinthran
MUMBAI – Nearly two-and-a-half years after its ambitious launch, the Reserve Bank of India's Retail Direct platform aimed at increasing participation of retail investors in the government bond market is yet to really take off due to a complicated settlement mechanism and lack of liquidity, market participants said. Participation in the scheme, launched by Prime Minister Narendra Modi in November 2021, still seems to be paltry.
The platform allows individual investors to directly invest in government securities by maintaining an account with the RBI. Investors can use the platform to buy gilts at primary auctions and on the Negotiated Dealing System-Order Matching Platform.
According to RBI data, the total number of accounts opened under the scheme was 120,626 as on Apr 8 compared with around 111.56 mln demat account holders with Central Depository Services (India) Ltd as on Mar 31.
The cumulative trading volume in the secondary market through RBI Retail Direct was 6.56 bln rupees, while the total primary market subscriptions were 42.77 bln rupees as on Apr 8.
Market participants said one of the main complaints against the scheme is that government bonds are issued in the Subsidiary General Ledger format, rather than a customer's demat accounts. The subsidiary general ledger is a dematerialised form of holding government securities with the RBI, but does not communicate with an investor's common demat account with commercial banks.
"Participants get bonds in SGL (Subsidiary General Ledger) format and not the Demat (Dematerialised) format," Nikhil Bhargav, vice president of fixed income and products at INRBonds, a bond platform, said. "We have a T+3 or T+4 conversion time for the papers as they cannot trade with the subsidiary general ledger format. The cumbersome process is a drawback for retail players."
In the secondary market, retail investor trades are usually done under the odd lot segment of the Negotiated Dealing System – Order Matching platform. All orders whose order size is less than the regular lot size of 50 mln rupees are traded here.
Though the RBI has asked primary dealerships to match buy and sell quotes for liquid securities they own in the odd lot and request for quote segments throughout market hours, primary dealerships offer out-of-market prices for matching retail orders, wiping out most profits for an investor, brokers said.
"Retail investors usually get levels which are lower than market levels (in the secondary market)," Karan Kothari, senior manager at LKP Securities, said. "Anybody who wants to invest in G-sec will have to hold it till maturity because exiting will lead to an immediate loss of 10-12 paise."
Currently, the odd lot renders government securities, especially bonds above 10 years, illiquid as they can't find any buyers, an official on the retail desk of Federal Bank said. Retail investors prefer Treasury bills over gilts as T-bills are short-term and liquid investments, the Federal Bank official said. No wonder, T-bill subscriptions at 28.82 bln rupees accounted for two-third of the cumulative primary market subscriptions as on Apr 8.
Brokers said the current taxation regime for returns makes gilts a poor choice for savvy high net worth individuals who might want to branch out into the asset classes. Investing into debt through mutual funds eases the trading burden for the user and offers similar returns, while attracting a similar tax hit – typically 30%, for investors earning above 1.5 mln rupees a year. With competitive returns available in equities at a 10% tax rate, fixed income investments are naturally sidelined, brokers said.
In a bid to provide greater convenience to retail investors, RBI Governor Shaktikanta Das had announced on Apr 5 that the central bank will launch a mobile app for accessing the Retail Direct portal. However, introduction of an app may not change the appeal of Retail Direct much as the structural problems remain, brokerages said. End
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Send comments to feedback@informistmedia.com
© Informist Media Pvt. Ltd. 2024. All rights reserved.