Reserve Bank of India’s direct access to government securities trading platform to small investors is a major structural reform. Explain (200 Words)
Refer - The Indian Express
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KEY POINTS
Government securities
· These are debt instruments issued by the government to borrow money. The two key categories are treasury bills short-term instruments which mature in 91 days, 182 days, or 364 days, and dated securities.
Retail investors
· Small investors can invest indirectly in g-secs by buying mutual funds or through certain policies issued by life insurance firms.
· Retail investors are allowed to place non-competitive bids in auctions of government bonds through their demat accounts.
· Stock exchanges act as aggregators and facilitators of retail bids.
The government and RBI keen to push g-secs
· The RBI is the debt manager for the government.
· In the forthcoming financial year, the government plans to borrow Rs 12 lakh crore from the market.
· It is in the government’s and RBI’s interest to bring this down. That can happen by broadening the base of investors and making it easier for them to buy g-secs.
Risks
· Like bank fixed deposits, g-secs are not tax-free.
· They are generally considered the safest form of investment because they are backed by the government. So, the risk of default is almost nil.
· However, they are not completely risk free, since they are subject to fluctuations in interest rates.
· Bank fixed deposits, on the other hand, are guaranteed only to the extent of Rs 5 lakh by the Deposit Insurance and Credit Guarantee Corporation (DICGC).
