GILT: A golden opportunity for Indian expatriates
Published: 03:10 PM,Oct 13,2024 | EDITED : 06:10 PM,Oct 13,2024
Investments in Government Securities (Gilts) are considered risk-free. They are safe investments as the investors are guaranteed the return of both principal and interest from the government.
These securities are Central Government Securities (CGS) Treasury Bills (T-Bills) and State Government Loans (SDL). T Bills are short-term, starting from 91 days to 365 days while CGS are long-term and issued up to 40 years of tenor.
While Non-Resident Indians are not allowed to invest in many popular deposit schemes of the Government of India like the Public Provident Fund, Sukanya Deposit, Senior Citizen Deposit Scheme, certain post office deposit schemes, and also Sovereign Gold Scheme(SGBs), they are however permitted to invest in the Indian Government and State Government Securities.
The advantage of the above is that these investments are risk-free and one can choose from short-term to long-term depending on the liquidity requirements. Again, this is best suited to those with a low-risk tolerance.
Under the Retail Direct Scheme (RBI) individual retail investors can open a ‘Retail Direct Gilt (RDG) account with RBI. Using this account, the retail investors can buy, hold and sell government securities through the online portal.
Opening of an account is through a very simple process. The NRI should have a rupee savings bank account with any bank in India with an online/UPI facility. Through the RBI website, the (https://rbiretaildirect.org.in) account can be opened by uploading the required documents like PAN/Aadhaar, e-mail id, mobile number, address proof, scanned signature and other KYC documents.
Once approved, user ID and other details will be made available through SMS/email. Joint account and nomination facility are available for the RBI Gilt account.
The facility is absolutely free and no charges are involved. Upon opening the account, the individual investor buy the securities through primary auction and also through the secondary platform of RBI known as NDS(OM).
A sufficient amount is to be kept in the savings bank account linked to the RBI Retail Direct account for participating in the auction. The RBI conducts periodical auctions of Government dated securities and T Bills. Generally, T-Bills auctions are held on all Tuesdays while State Government and Central Government securities are held on Tuesdays and Fridays respectively.
The investors are allowed to participate on non-competitive bid and the securities are allotted at a weighted average. Since the amount payable is not known at the time of placing the bid, the indicative price, the accrued interest and a markup amount are also required to be kept in the SB account and marked lien.
In respect of State Government securities, the issue price is normally declared by the RBI. The excess amount will be released upon allotment of the securities.
Similarly, those who wish to buy securities or sell the securities acquired in the auction may do so in the secondary market (RBI-OM). Hence the scheme provides ample liquidity to the investors.
The minimum amount of investment is INR 10,000 while the maximum is restricted to INR 2 crores in respect of Central Government dated securities and 1 per cent and 5 per cent of the auction amount for state development loans and T-bills respectively.
As stated earlier, investments in government securities are best suited to those whose risk appetite is very low and who need regular income.
Government securities except T-Bills pay coupons on a semi-annual basis. Again, those who hold an outlook of softening of interest rates in the medium to long-term horizon can look for long-dated securities.
This enables them to manage the re-investment risk as well as an opportunity to sell the securities and book abnormal profit when the interest rates cool down. Though the investments in Gilts are safe, they are subject to market risks, if you sell before maturity.
These securities are Central Government Securities (CGS) Treasury Bills (T-Bills) and State Government Loans (SDL). T Bills are short-term, starting from 91 days to 365 days while CGS are long-term and issued up to 40 years of tenor.
While Non-Resident Indians are not allowed to invest in many popular deposit schemes of the Government of India like the Public Provident Fund, Sukanya Deposit, Senior Citizen Deposit Scheme, certain post office deposit schemes, and also Sovereign Gold Scheme(SGBs), they are however permitted to invest in the Indian Government and State Government Securities.
The advantage of the above is that these investments are risk-free and one can choose from short-term to long-term depending on the liquidity requirements. Again, this is best suited to those with a low-risk tolerance.
Under the Retail Direct Scheme (RBI) individual retail investors can open a ‘Retail Direct Gilt (RDG) account with RBI. Using this account, the retail investors can buy, hold and sell government securities through the online portal.
Opening of an account is through a very simple process. The NRI should have a rupee savings bank account with any bank in India with an online/UPI facility. Through the RBI website, the (https://rbiretaildirect.org.in) account can be opened by uploading the required documents like PAN/Aadhaar, e-mail id, mobile number, address proof, scanned signature and other KYC documents.
Once approved, user ID and other details will be made available through SMS/email. Joint account and nomination facility are available for the RBI Gilt account.
The facility is absolutely free and no charges are involved. Upon opening the account, the individual investor buy the securities through primary auction and also through the secondary platform of RBI known as NDS(OM).
A sufficient amount is to be kept in the savings bank account linked to the RBI Retail Direct account for participating in the auction. The RBI conducts periodical auctions of Government dated securities and T Bills. Generally, T-Bills auctions are held on all Tuesdays while State Government and Central Government securities are held on Tuesdays and Fridays respectively.
The investors are allowed to participate on non-competitive bid and the securities are allotted at a weighted average. Since the amount payable is not known at the time of placing the bid, the indicative price, the accrued interest and a markup amount are also required to be kept in the SB account and marked lien.
In respect of State Government securities, the issue price is normally declared by the RBI. The excess amount will be released upon allotment of the securities.
Similarly, those who wish to buy securities or sell the securities acquired in the auction may do so in the secondary market (RBI-OM). Hence the scheme provides ample liquidity to the investors.
The minimum amount of investment is INR 10,000 while the maximum is restricted to INR 2 crores in respect of Central Government dated securities and 1 per cent and 5 per cent of the auction amount for state development loans and T-bills respectively.
As stated earlier, investments in government securities are best suited to those whose risk appetite is very low and who need regular income.
Government securities except T-Bills pay coupons on a semi-annual basis. Again, those who hold an outlook of softening of interest rates in the medium to long-term horizon can look for long-dated securities.
This enables them to manage the re-investment risk as well as an opportunity to sell the securities and book abnormal profit when the interest rates cool down. Though the investments in Gilts are safe, they are subject to market risks, if you sell before maturity.