RBI Retail Direct Scheme

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    Recently, the RBI has announced the Retail Direct scheme.

    About

    • Under this scheme, retail investors  (individuals) will be allowed to open retail direct gilt accounts (RDG) directly with the RBI.
    • A retail investor is a non-professional investor who buys and sells securities or funds that contain a basket of securities such as mutual funds and Exchange Traded Funds (ETFs).

     RBI Retail Direct’ scheme

    • It is a one-stop solution to facilitate investment in Government Securities by individual investors.
    • RDG Account can be opened through an ‘Online portal’ provided for the purpose of the scheme.
    • The ‘Online portal’ will also give the registered users the following facilities:
      • Access to primary issuance of Government securities
      • Access to Negotiated Dealing System-Order Matching system (NDS-OM).

    Negotiated Dealing System (NDS)

    • The Negotiated Dealing System, or NDS, is an electronic trading platform operated by the Reserve Bank of India to facilitate the issuing and exchange of government securities and other types of money market instruments. 
    • It was introduced in February 2002 to help the Reserve Bank of India, or RBI, enhance the dealings of fixed income investments.
    • In August 2005, the RBI introduced the Negotiated Dealing System – Order Matching system, or NDS-OM, an electronic, screen-based, anonymous, order-driven trading system for dealing in government securities. 
    • The system is designed to bring transparency to secondary market transactions, while enabling members to place bids and offers directly on the NDS-OM screen.

    G-Sec market 

    • Presently, the g-sec market is dominated by institutional investors such as banks, mutual funds, and insurance companies. These entities trade in lot sizes of Rs 5 crore or more.
    • So, there is no liquidity in the secondary market for small investors who would want to trade in smaller lot sizes.
    • The primary market is where securities are created, while the secondary market is where those securities are traded by investors.
    • G Securities: These are debt instruments issued by the government to borrow money. 
      • The two key categories are treasury bills – short-term instruments which mature in 91 days, 182 days, or 364 days, and dated securities – long-term instruments, which mature anywhere between 5 years and 40 years.
      • The G-sec market is dominated by institutional investors such as banks, mutual funds and insurance companies.

    Initiatives Taken 

    • Introducing non-competitive bidding in primary auctions
    • permitting bourses to act as aggregators or facilitators for retail investors 
    • Allowing odd-lot segments in the NDS-OM secondary market.

    Source: IE