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Direct access to government securities trading platform to small investors

  • Posted By
    10Pointer
  • Categories
    Economy
  • Published
    6th Feb, 2021

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.