The RBI, in a recent announcement, has proposed to allow retail investors to directly access its system for placing orders for government securities – “G-Secs” or “Gilts”. G-Secs are government bonds that are backed by the government and are therefore considered to be risk-free. If the RBI is able to execute this plan in such a way that it becomes possible for retail investors to directly invest in the primary and/or secondary market for G-Secs, it will be a significant boon and a good alternative for the retail investor’s short-term funds.
We should remember to always invest only short-term funds (max 2-3 years) in fixed-income assets like fixed deposits, debt funds or Gilts. Investing in longer-term bonds will leave us exposed to inflation risk and/or interest-rate risk.
We should also invest in these securities only on a hold-to-maturity (HTM) basis as these securities (especially the longer-dated ones) can be highly volatile and sensitive to changes in interest rates. If we follow the HTM principle, we can rest assured that we will receive the interest that we were promised.
The success of this proposal will hinge on how easy or difficult it will be for the retail investor to actually transact through the system and also other factors like minimum investment amounts.