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Mutual Funds

RBI Retail direct vs investment in debt mutual funds – how does it compare

Written by - Marisha Bhatt

November 2, 2022 5 minutes

When we think of investment options for risk-averse investors, the traditional investment options include bank FDs, Post Office Savings Schemes, Government Bonds, Government Savings Schemes, etc. Investment in these options can provide a more or less stable source of income at a much lower risk as compared to dynamic investment options like equity and equity-related instruments or mutual funds. However, the investment process of these investments is quite cumbersome. Till now investors could invest in the notified government securities through debt mutual funds. However, after a recent amendment by RBI, investors can directly invest in these securities through their designated digital platform. 

Given below are the details of this amendment and other related details the same.

What is RBI Retail Direct Scheme?

RBI Retail Direct policy has been in the pipeline since Feb 2021. However,  it was finally implemented in November 2021. Under this scheme, investors can invest in government securities through a designated online platform also known as ‘rbiretaildirect.org.in’. The account opened by them will be known as the RBI Direct Gilt (RwDG) account which will be a Gilt Securities Account. This facility is said to act as a central portal for investing in the following four categories of government investments,

  1. Government securities like treasury bills
  2. Sovereign gold bonds
  3. Central Government bonds
  4. State Government bonds

Read more: Digital gold vs Sovereign Gold Bond – Where should you invest?

What are the highlights of the RBI Retail Direct Scheme? 

The key features of this scheme are mentioned below. 

  1. This account can be opened by individual investors i.e., retail investors only.
  2. Such investors will need the required documents for opening the RDG account which include a valid PAN card, a valid savings bank account, any other document for KYC as per the available guidelines, a valid email ID, and a registered mobile number. 
  3. An RDG account can be opened jointly and in such cases, KYC of all the joint account holders is needed. 
  4. A person can open only one RDG account in their name. 
  5. The cost of opening an RDG account is NIL, therefore, it is opened and maintained with RBI for zero costs.
  6. This account also provides nomination facilities for up to 2 nominees. The Retail Direct portal also provides the facility to change nominations at any point.
  7. The minimum investment amount through the RDG account for all the notified investments is Rs. 10,000 while in the case of Sovereign Gold Bonds is 1 gram of gold
  8. Investors can purchase securities through the primary market as well as from secondary markets. 

What are the key differences between investing through RBI Retail Direct and investing in debt mutual funds?

CategoryRBI Retail DirectDebt mutual funds
Cost of investment The cost of investment under the RBI Retail Direct is zero and therefore can be accessed by any retail investors without worrying about the cost of investment.The cost of investment in the case of debt mutual funds is relatively higher. Investors need to account for this cost while targeting the returns from their investments.
Duration of investment The usual duration of investment in an RDG account differs based on the type of investments and is usually between 91 days to 1 to 1 year or moreIn the case of debt mutual funds investments, the usual tenure is approximately 3 years to 5 years
Diversification By investing through RDG Retail Direct account investors will get the benefit of investment in a single asset class.  Debt mutual funds are a collection of different assets and therefore, through investment in debt mutual funds, investors can get additional benefits of returns from multiple assets. 
TaxabilityInvestment under the RDG account will be taxed as per the applicable slab rates of the investors. Therefore, for investors in the highest tax bracket, the returns may not be lucrative list taxation. Investors in the case of debt mutual funds have to pay tax at a flat rate of 20% on LTCG and on STCG, taxation will be applicable as per slab rates of the investors.
Ease of investmentInvestment in an RDG account can be done only through online mode by visiting the designated portal Investment in debt mutual funds can be done online as well as offline mode
Easy exit optionExiting the investment through an RDG account can be difficult as the onus of finding interested buyers is on the investors.Exiting from debt mutual funds is quite easier as it provides a high level of liquidity. Investors can exit at any point at the prevailing NAV and reinvest the same into different assets or continue with the same assets by investing in them again.

Conclusion 

RBI Retail Direct gives retail investors an opportunity to invest in virtually risk-free assets and gain stable income on the same along the way. The government also can get access to more funds from individual investors to fund the necessary projects in the country. This investment option is a good opportunity for investors to balance their portfolio as well as gain the majority of benefits similar to investing in any government scheme. 

FAQs

 Is it mandatory to provide a nomination while opening an RDG account?

Yes. Investors have to mandatorily provide the nomination at the time of opening the account.

What is the cost of opening an RDG account?

The cost of opening an RDG account is zero. Interested investors can open it for free through the online registration portal offered by RBI on its designated link.

What is the process of investing through an RBI Retail Direct account?

Investors can place bids on the available securities or can place a buy quote on the secondary market. Per investor is allowed only one final bid per security in the primary auction.

Can institutional investors open RDG accounts?

No. RDG accounts cannot be opened by an institutional investor. It is available exclusively for retail investors only.

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