Need to popularise G-Secs among retail investors

Feb 26 2013, 08:46 IST
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SummaryOf the various investment avenues available to the public, the one that would have been the best from credit-risk perspective — government securities— is conspicuous by its absence.

existing security being reissued.

All the information required, such as maturity date of the paper and the size of the auction and the type of the auction (price based or yield based), will be made available to the customers in the banks’ branches. You can participate in the non-competitive bidding by filling the application form, which is available at our branches. Also an undertaking from the investor that he is making a single bid only is necessary as per RBI guideline.”

ABC Bank takes a nominal charge of 6 paise per R100 as commission for rendering the service to the investors. The commission will be built into the price of the security. After successful acquisition of the security, the customer can keep the security in his name in the Constituent Subsidiary General Ledger Account (CSGL) account of ABC Bank in RBI, or, get the security credited to his/her existing demat account with a depository participant.

The only issue with acquiring a G-Sec through the route discussed above is lack of liquidity in the secondary market for retail lots. As and when the retail investor base increases, the profit booking and cash flow needs of people will lead to demand and supply, which will automatically lead to trades in small lots. We have seen similar cases; the secondary corporate bond market is wholesale but there are retail trades in the SBI and tax-free PSU bonds that have a retail investor base.

The first step to popularise G-Secs is to incentivise, which can be done through tax breaks. If tax breaks can be granted for equity-linked savings schemes (ELSS) and bank deposits under the Income Tax Act, why not for G-Secs? To facilitate the process, Banks should guide/advise investors on the price/coupon at which to bid, or how to acquire G-Secs from the secondary market, so that the tax-break (if and when granted) is followed up with execution.

The way ahead

* One way to popularise G-Secs among the retail/individual investors is to make it available as an easy-to-understand, investible product, like deposits, through banks and post offices

* Banks can make G-Secs available to their customers, through notices put up at their branches or on their websites so that people can put in their bids

* The lot sizes for putting in the bids can be small as the aggregate of those bids is likely to be a reasonably large quantum

* The only issue with

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