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Economy

RBI Opens Government Bonds and T-Bills to Retail Investors: Will You Buy?

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RBI has opened up the government bond market to retail investors. We at Capital Mind have been waiting for Rajan to do this for years. When Raghuram Rajan joined as the RBI governor he had hinted that this would happen. At the time, 91-day government paper was going for 11%, which is to say that the government was borrowing money at 11% for 91 days.
You and I would have jumped to buy them. But we couldn’t. They were simply not available to us. A bank could buy it, and a mutual fund could buy it. We couldn’t, as retail individuals. And then there are 40 year bonds – no bank will give you a 40 year fixed deposit – but the government does.
And it does it in small denominations. At Rs. 10,000 per bond.
Now you can buy them too, as the RBI has opened up this market to retail buyers. The first RBI notification says that the T-Bill market is now open, for auction bids. There is about Rs. 15,000 crores worth of Treasury-Bills auctioned every week. Some of them are for 91 days (meaning you get back the money in 91 days) and others are for 182 days or 364 days. (Starts August 3, 2016)
The second notification allows retail participants to buy Government bonds of longer tenures too. The NDS-OM market, which is where Government Securities trade, has been only allowed for Banks/Mutual Funds/Insurers so far. Now, the NDS-OM system has been opened up for retail too but in a phased way.

  • A bank who also holds demat accounts can give access to the NDS-OM web site – where you can buy bonds
  • A bank customer can ask a bank to transfer bonds to/from their demat account through trades in the NDS-OM Terminal.

This is complex. Capital Mind has been looking forward to this, and we’ll get more details and try to simplify the process. Currently yields are low:

  • T-Bills are at 6.5% (91 days to 364 days)
  • 10 year bonds are at 7.16%
  • 40 year bonds are at 7.35%

These are low yields but when some of this euphoria dies you will find periods where these yields are very attractive. In fact I even have tweeted them in the last two years:
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These yields, which in many cases were higher than equivalent deposit rates at banks, were not available. Now they will be!
How? We don’t know the exact procedure yet, since only banks can create them. But we’ll have details – and will likely have a solid product for you too.
Capital Mind has always had a deep interest in the space. We were super-excited when this topic was introduced but since nothing happened, we let it simmer. Now that it’s back, will you buy government bonds? Do you have questions? Please do take our small poll below.

  • Sanjay Singhaniya says:

    On interest earned on Goverment bonds, investor has to pay income tax. If he goes via Mutual Fund route, he doesn’t have to pay income tax. He can hold it for three years for long term capital gain and indexation.
    But if there exists people who buy corporate bonds, they will certainly be excited to see that they can buy government bonds.
    I am hardly excited about the news. But I was not interested even in corporate bonds also, because of taxation.