Mutual funds do not see RBI's move to allow retail investors to invest in government securities hurting inflows in g-sec funds. Fund managers say that very few investors are likely to buy government bonds directly due to liquidity concerns and low after-tax returns.
RBI has allowed retail investors to invest in securities issued by central and state government through ‘RBI Retail Direct’. The minimum ticket size to invest in such securities is Rs.10,000. Investors will have to open a Retail Direct Gilt (RDG) Accounts with RBI to make the investment. However, the central bank is yet to notify the date of commencement of the scheme.
As of now, only institutional investors such as banks, mutual funds and insurance companies are allowed to invest in these bonds.
Experts believes that while investors can buy government security directly from the platform, they may not find buyer to sell such securities if they do not held g-sec until maturity. Also, there will be no indexation benefit on taxation as in debt funds.
Also, the government securities will also face stiff competition from RBI bonds. "RBI's 7-year bond (which is already open to individual investment) is offering 7.15% return, which is higher than what 7-year G-sec is offering at the moment," said Dhawal Dalal, CIO-Fixed Income, Edelweiss MF.
He further said that the move is part of continuing efforts by RBI and the government to raise retail participation in G-secs. "Government of India and the RBI have been trying hard to get retail investors into sovereign bonds. Eventually, like every investment institution, they are targeting a larger share of the Rs 16 trillion worth of household savings in mutual funds and over Rs 150 trillion in bank deposits. At present, the household investment in sovereign assets is mostly through small savings scheme," said Dhawal Dalal.
Pankaj Pathak, Fund Manager, Quantum MF said the large investment market cannot be disrupted by addition of a new investment option. "There may be some shift but it won't impact mutual space in a material way. Despite the availability of direct option in stocks, retail investors continue to invest in equity funds. Moreover, a large portion of investment that will flow into g-secs through the direct route is likely to shift out of term deposits like FDs."
