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    Should retail investors go for G-secs? Here's what experts say

    Should retail investors go for G-secs? Here's what experts say

    Should retail investors go for G-secs? Here's what experts say
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    By Ankit Gohel   IST (Published)

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    In a major reform to deepen the bond market in India, Reserve Bank of India (RBI) Governor Shaktikanta Das on Friday announced that retail investors can open Gilt Accounts, allowing them direct access to invest in the primary and secondary government bond market.

    In a major reform to deepen the bond market in India, Reserve Bank of India (RBI) Governor Shaktikanta Das on Friday announced that retail investors can open Gilt Accounts, allowing them direct access to invest in the primary and secondary government bond market.
    The central bank will soon launch a platform named ‘Retail Direct’ to allow retail investors direct access to the government securities market. This is a major structural reform placing India among a select few countries that have similar facilities.
    The move is expected to broaden the investor base and enhance retail investors' access to the government securities market. Currently, retail investors can buy government securities through non-competitive bidding in primary auctions through intermediaries.
    A Gilt Account is an account for holding government securities or treasury bills. Government security, also known as G-Sec, is a tradeable instrument issued by the Centre or state governments, acknowledging the government’s debt obligation.
    G-Sec accounts for retail investors: Know all about Gilt Accounts and government securities
    Analysts are of the view that the though G-Sec have a low rate of return, they carry no risk of default as they come with a sovereign guarantee. Being government securities, they are sensitive to interest rate changes.
    Hence, analysts suggest the best time to invest in Gilt funds is during a falling interest rate regime. Pensioners and low risk-takers can opt for investing in G-Sec as it is a safe investment option that can give them assured long-term returns.
    However, Abheek Barua, Chief Economist at HDFC Bank is of the view that there is a need to educate retail investors considerably about the vagaries of the government bond market because otherwise they might be taken by surprise.
    ICICI Securities said that RBI’s move opens up one more avenue for retail investors and can cannibalise existing savings instruments.
    "As a result, banks may have to price deposits attractively to avoid outflows of retail depositors into G-Sec. Also, we need to understand tax advantage on the same, if any," ICICI Securities said.
    CARE Ratings said that it was a positive move for retail investors who wish to seek moderate and safe returns from the G-Sec market and that this will further improve liquidity via improved retail participation in the G-Sec market.
    However, retail participation in the corporate bond market has been very low due to the complexity of their pricing.  Liquidity in the secondary market for most G-Secs is limited and hence it is hard to sell those which cease to be the benchmarks.
    Therefore, CARE Ratings expects there may not be too much participation. Also, yields may not be attractive compared with even FDs of banks, it said.
    Emkay Global believes that allowing retail investors to open a Gilt Accounts would help deepening bond market and participation in the long run, but could be slightly negative for Mutual Funds offering debt market investments.
    (Disclaimer: The views and investment tips expressed by investment experts on CNBCTV18.com are their own and not that of the website or its management. CNBCTV18.com advises users to check with certified experts before taking any investment decisions.)
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