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What should you know about the RBI Retail Direct scheme?

Written by - Akshatha Sajumon

November 12, 2021 3 minutes

The IPO season is going on in full swing with blockbuster offerings and listings. At the same time, applying for debt which is an important part of any portfolio is getting easier through a newly introduced avenue. 

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What’s going on here?

The PM launched the RBI’s Retail Direct scheme’ on 12 Nov in a virtual meet.

What is Retail Direct scheme?

Retail Direct is a scheme through which individual investors can invest in government securities online through the RBI portal The RBI had announced this scheme in its Feb 2021 monetary policy.

More about the Retail Direct scheme

Just like any individual or a company that borrows or takes a loan to meet some requirement, the Government of India borrows from the public to meet its expenditures like creating infrastructure, for welfare schemes, etc. These borrowings are through short term or long term government securities. They are also called as Bonds or Treasury Bills(T-Bills).

As they are borrowed by the Government of India, they are risk-free. As with any loan, a fixed interest is paid by the borrower which is pre-decided at regular intervals, and the principal is repaid at the end of the term.

Till now, these securities could be bought only by institutions like banks, mutual funds, etc. However, with the introduction of the Retail Direct scheme, individuals can participate and lend extra cash lying with you to the Govt and earn interest on it. 

Through the scheme, you can not only invest in securities for the first time (primary market) but also trade in previously issued securities on the RBI platform. This is just like how you do it on the stock market. You could also invest in Sovereign Gold Bonds through the platform.

How does the Retail Direct scheme work?

To start investing in G-securities by opening a free-of-cost Retail Direct Gilt Account on the website if you meet certain conditions like having a Savings Bank account in India, PAN, proof of identity a valid email id, and mobile number. Joint accounts are allowed. There are no charges for buying/selling a bond, the payment gateway charges will have to be borne by the individual.

Payment for the securities can be through net banking, UPI, or through ASBA.

How does the Retail Direct scheme help you and me?

Asset allocation or diversification is an important part of investing. You should have a certain portion of debt in your portfolio based on your risk appetite as a means of diversification. Investing directly in G-securities can provide you that diversification with safety. But make sure you understand the working of the market well, especially, if you are trading in the secondary market.

You Ask We Answer?

Dividend from MF is already taxed at the hands of the MF AMC. It is being taxed again by TDS deduction @,7.5%. Is there a Rs 1 Lakh exemption limit for MF dividend earned as the previous year?- Abhishek

Mutual fund dividends are not taxed at the hands of AMC anymore. Any dividend you earn is taxed in the hands of the individual at his/her slab rate. 

If the amount of dividend exceeds Rs 5000 in a year, TDS at the rate of 10% will be deducted. There is no exemption on the dividend earned.

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