Direct access to government securities trading platform to small investors

The Reserve Bank of India (RBI) said that it will give small investors direct access to its government securities trading platform.

Context

• The Reserve Bank of India (RBI) said that it will give small investors direct access to its government securities trading platform.

What are government securities (g-secs)?

• These are debt instruments issued by the government to borrow money.
• The two key categories are-
• Treasury bills – short-term instruments that mature in 91 days, 182 days, or 364 days
• Dated securities – long-term instruments, which mature anywhere between 5 years and 40 years
• Like bank fixed deposits, g-secs are not tax-free.

Status of small investors for g-sec

• Small investors can invest indirectly in g-secs by buying mutual funds or through certain policies issued by life insurance firms.

Previous initiatives to encourage direct investment by retail investors in g-sec

• Non- competitive bids: Retail investors are allowed to place non-competitive bids in auctions of government bonds through their Demat accounts.
• Facilitation: Stock exchanges act as aggregators and facilitators of retail bids.
• App-based service: NSE GoBid app or retail debt market (RDM) segment at the Exchange.

Need for the proposal

• Dominance of big investors: The g-sec market is dominated by institutional investors such as banks, mutual funds, and insurance companies.
• Crunch of liquidity: There is no liquidity in the secondary market for small investors who would want to trade in smaller lot sizes.

How it is beneficial for small investors?

• Easier process:RBI intends to make the whole process of g-sec trading smoother for small investors.
• Opening accounts: It will help investors by allowing people to open accounts in RBI’s e-kuber system.
• The market for small investors: It is hoping to create a market of small investors who will invest in these instruments.