Experts have doubts about Bond Retail Direct Scheme

Some of the major areas of concern are taxation, locking in funds for the long term, and overall investor knowledge and understanding on the bond markets.

The objective of the scheme is to bring more people into the bond markets, thereby expanding opportunities for the government to borrow from the market. Through a dedicated portal, retail investors can place non-competitive bids in the primary issue of all central government securities, including treasury bills and sovereign gold bonds, and securities issued by various state governments. They can also access the secondary market through the trading system of the Reserve Bank of India (RBI).

“Retail investors have severe limitations on entering the bond markets. Firstly, it is a long-term investment and you run the risk of not being able to take advantage of interest rate changes over that period,” said Madan Sabnavis, chief economist at Care Ratings. Also, Sabnavis said, such long-term Tenure After the initial period, government securities become virtually non-tradable and one gets stuck in it forever.Also, small savings schemes are giving better returns and are equally safe.

“Also, many ordinary investors do not understand the bond market as it is not as straightforward as equities. Currently, there are 90 existing government bonds and no more than 15 are being traded. While it is a good move to open it up and investors should have multiple instruments at their disposal, I doubt it will be of much interest.”

According to Kunal Sodhani, Assistant Vice President (Global Business Centre), Shinhan Bank India, the product has received a good response, with over 20,000 registrations already done. However, he also expressed some concerns on how the liquidity of the market would be. This happens with any new product and as the market matures, it automatically gets noticed, Sodhani said.

“Participants should understand that there is no credit risk, but interest rate risk remains. Another area (of concern) remains in terms of taxation. While products such as small savings deposits, national savings certificates or public provident funds While mutual funds offer tax benefits, and mutual funds offer indexation benefits which reduce the tax payable, here the profit remains taxable, which may remain a challenge from the product point of view,” Sodhani said.

Others pointed out that the Government Securities (G-Sec) market is dominated by institutional investors such as banks, insurance companies and mutual funds with lot sizes of `5 crore and above. Hence, it was inaccessible to retail investors till now.

“Retail investors could till now participate in government securities only through debt mutual funds, though with limited options. Further, in debt funds, investors will have to invest with a minimum investment horizon of three years through growth option to qualify for long-term capital gains at 20% with indexation benefit,” said Motilal Oswal Senior Executive Vice President Nitin Shanbhag said. private money.

“New investors should understand the workings of the bond market, such as the inverse relationship between interest rates and bond prices, before they jump into action,” said Adil Shetty, chief executive officer of financial services marketplace BankBazaar.com.