Will RBI's Retail Direct scheme spur retail investor interest in bonds?

On November 12, Prime Minister Narendra Modi launched the Reserve Bank of India Retail Direct Scheme to provide retail investors an opportunity to invest in government securities (G-Secs) in a hassle-free manner.
 
Under the scheme, retail investors can buy G-Sec directly and free of cost. This is in contrast to the existing mechanism, wherein investors could buy government securities through gilt mutual funds.
 
Another alternative was to buy it through G-Sec dealers who would place it in RBI’s primary market auction, held every Friday. But if you want to buy existing G-Secs listed in the secondary market, you can buy them from the BSE and the NSE.
 
However, low level of awareness, procedural issues and low liquidity in the secondary market were some of the reasons why investors stayed away from investing in G-Secs.
 
So, will this new scheme spur small investors’ interest in bonds?
 
Independent market analyst Ambareesh Baliga said:
 

• RBI-RD was a long-term need of retail investors
• Don’t expect a rush in G-Sec investing
• Suitable for those looking for capital safety, steady returns

 
For Nitin Shanbhag, Senior Group Vice-President - Investment Products at Motilal Oswal Private Wealth, RBI-RD will open the door for retail investors to participate in G-Secs. He said: “The G-Sec market is dominated by institutional investors like banks, insurance companies, mutual funds, etc with lot sizes of Rs 5 crore and higher. Hence, this segment was largely inaccessible to retail participants. The RBI Retail Direct Scheme will enable retail investors to participate in G-Secs across various tenors with flexible investment horizons and with the ability to get regular cash flows through risk-free coupons.”
 
So, should you invest in G-Secs right now? Independent debt market analyst Joydeep Sen said:
 

• Buying a Held-to-Maturity (HTM) bond today will save investors from mark-to-market (MTM) volatility
• However, buying bonds six months hence may offer better entry point
• Holding a HTM bond via ‘direct’ route is easy as compared to the mutual fund route

 
That said, Sen believes the success of RBI-Retail Direct scheme will depend on how liquid these bonds are at the time of selling and if the buyers are able to sell them at a profitable price.
 
Meanwhile this week, equity investors will shift focus on primary markets amid a slew of new issues and listings.
 
EVENTS THIS WEEK

• Tarsons Products IPO: Nov 15-17
• Go Fashion IPO: Nov 17-22
• Policybazaar, Sigachi, SJS listings: Nov 15
• Paytm listing: Likely on Nov 18

 
Tarsons Products will open its three-day initial public offering today and conclude it on November 17. It has fixed a price band of Rs 635-662 per share for its Rs 1,024-crore IPO.
 
Meanwhile, the Rs 800-crore initial share-sale of Go Fashion will open for public subscription on November 17 and close on Nov 22.
 
On the listing front, Policybazaar, Sigachi Industries, Paytm, and SJS Enterprises will debut on the bourses this week.
 
Last Friday, the BSE Sensex and the Nifty50 settled with weekly gains of one per cent each at 60,687 and 18,103, respectively.
 
Key levels to watch
 

• Nifty range: 17,800-18,500
  • Support: 17,950
  • Resistance: 18,340
• Sensex range: 60,050 - 61,350
  • Support: 60,300
  • Resistance: 61,100

 
According to tech charts, the Nifty index is likely to trade within a range of 17,800 to 18,500 this week. The Sensex, on the other hand, is expected to trade within a range of 60,050 to 61,350.