Is RBI's Retail Direct Scheme good for investment in Government Bonds? Find the Answer

The newly launched RBI's Retail Direct Scheme for the investment in government security bonds by the government of India is now making buzz around the investors after a month of its launch. What is RBI's Retail Direct Scheme? Under the scheme, investors are provided with alternative investment destinations such as traditional insurance plans, debt funds, and small saving schemes.

RBI's Retail Direct Scheme allows common, individual investors to invest or buy and sell government security bonds on its platform. To invest in the security bonds on the platform, all you need to have open a Gilt Security Account - "Retail Direct Gilt (RDG) Account with RBI."

Why should You Invest With the Retail Direct Portal?

Government security bonds are always a big attraction for investors when it comes to investing. Government security bonds offer great and fixed returns on investments. The Government Securities were previously only available to retail investors through traditional insurance plans or gilt mutual funds. However, after the launch of the Retail Direct Portal, you can invest in government securities through the Portal. The portal allows you to invest directly in government bonds with an RDG account.

Directly investing in the government securities with the RDG account offers a wide range of benefits such as there is no fee for opening the RDG account and also, there is maintaining charges unlike Debt Mutual Funds and traditional insurance plans. You only have to bear the payment gateway fee.

The portal allows you to choose specific bonds as per their pocket. This makes the portal a good investment gateway for individual investors who wish to learn and do it yourself. The flexibility it offers to individual investors is one of the highlighting points of RBI's Retail Direct Portal.

Is There any Issue With The Retail Direct Portal?

Everything comes with a catch and so does the RBI's Retail Direct Portal. Individual investors could find it hard to navigate the securities market. This scenario becomes even complex especially if you're purchasing the bonds on the secondary market and don't plan to keep them until they mature.

Furthermore, Government Securities do not have a risk of default, however, they do come with interest rate risk. If these bonds are sold before maturity in a rising interest rate environment, they will suffer significant mark-to-market losses. The individual investor's resolve may be put to the test in this situation. 

A sudden reduction in bond value may unnerve some investors, causing them to sell their bonds at a loss. This situation could encourage the small investors who are in the position to take a risk take other routes for investing such as mutual funds, and invest in a gilt fund. 

What are the Advantages of Investing in Government Security Bonds?

We have an idea Why should we invest with RBI's Retail Direct Portal and What are the issues with it. Now, it's also important to understand why investing in Government Security bonds are good and what are its advantages? 

Government Security Binds offers a great sense of security and the return it offers comes is also good as bank deposits. There is also a guarantee of principle as well as a fixed rate of interest. These bonds, unlike bank deposits, are available for a longer period of time.

Government Security bonds can be bought and sold much like stocks. But the most sought one is it offers regular income. The income earned on government bonds is paid to bondholders every six months, according to RBI regulation. As a result, it allows bondholders to receive a consistent income by investing their unused assets.