Factors such as interest rates, liquidity, exit opportunities will be critical factors
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The Reserve Bank of India, in a bold move, on Friday announced a structurally important reform which will allow individuals to buy government securities directly from the RBI.
While the move is seen as a huge positive to provide investors an alternative form of investment–and thus deepen the market–this benchmark 10-year bond yield at present gives a lower interest than other debt instruments such as the RBI 7-year-bond. It may thus not prove to be an attractive investing opportunity at this stage. This latest reform may have a limited immediate impact, but needs to be looked at from a medium to long-term horizon. Also matters such as a quick exit from the specific investment will become a critical factor in determining its success. Besides, investing in government securities is a cumbersome process, which at this stage may not attract much interest from investors. Hence investors should and need to wait until the regulation and processes are announced before they decide on their investments.
What Das has promised
Prior to the expansion and acceptance of the equity trading cult in India, in the early 1990s, when stock markets saw the listing of several companies, bonds were the more actively traded instrument in India. This was done in a physical form through broker intermediaries until banks gradually took charge. In later years, a specific retail segment was introduced in the secondary market.
RBI governor Shaktikanta Das said on Friday: “In continuation of these efforts, it is proposed to provide retail investors with online access to the government securities market–both primary and secondary–directly through the RBI. This will broaden the investor base and provide retail investors with enhanced access to participate in the government securities market,” Das said.