A question that has been asked a number of times and answered over and over again. Investing in bonds, preferably the high rating bonds is not only lucrative but safeguards your principal investment for the promised duration of time.
Investing in bonds is easier than ever since the initiation of G-Secs by the government of India. Purchasing of bonds has become possible because of the tech-startups such as Bonds India. Wherein, an investor can guide themselves through easy steps.
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Let’s first understand what the Government of India proposed.
Government Securities Market: Investment to become easier.
- As part of the continuing efforts to increase retail participation in government securities and to improve ease of access to investing in government bonds, the RBI in its latest monetary policy has proposed to provide retail investors online access to the government securities- both primary and secondary- along with the facility to open their gilt securities account. We could compare a gilt account to a bank account wherein government securities are debited and credit instead of money.
- The direct participation of retail investors in the bidding process will be enabled through the core banking solution of RBI (E-Kuber). This facility will be called Retail Direct.
- In the Asian continent, India will be the first country to allow retail investors to directly invest in Government Securities.
Should Retail Investors Go For G-Secs?
- The RBI move is expected to provide retail investors with enhanced access to bonds to invest in and participate in the G-Sec market and will broaden the investor base.
- RBI’s move opens up one more avenue of clarity for retail investors to invest in tax-free bonds and diversify their portfolio and also enrich existing savings instruments such as fixed deposits, small savings schemes, and bond funds of mutual funds.
- In fact, this move may also deepen the understanding of the common public on how to invest in bonds and pose competition to fixed deposits of banks and other debt instruments in the market.
- Other notable benefits of investing in Bonds are that G-Secs don’t attract capital gains tax if the papers are held till maturity and are better placed against FDs and other small saving schemes as far as savings for pensioners and low-risk takers are concerned.
- G-Secs also have low reinvestment risk as the investor can lock himself at the current yield for 20-30 years without exposing himself to reinvestment risk.
- This direct investment option will also be attractive to those investors who don’t want any fund manager-related risk.
What to Look at Before Investing?
- While investing in corporate bonds or any bonds, it is important to look at the yield the bond generates rather than looking at the coupon rate. The bond yield moves on account of various factors like interest rate, credit rating etc. Investors should keep an eye on domestic and global developments.
- According to Analysts, the best time to investment in bonds is during a falling interest rate regime.
RBI has taken a rather bold step by allowing retail participation in the G-Sec market. It could be a game changer as far as investing in public sector bonds are concerned. It will be a challenge for RBI to address the issue of ease of investing and liquidity through the online platform. Having said that, India will soon have a vibrant market for all stakeholders.
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