The minute I read about RBI launching retail direct scheme to allow retail investors to invest directly in the government bonds, I got excited. I have a huge portion of my investments in G-Sec (government securities) via various mutual funds. If there is a way I can invest directly with RBI, side stepping mutual funds, I could save on some expenses (expense ratio). Sounds good in theory, but will it work? Here are some of my initial thoughts on the scheme as applicable to me.

The good

First, you might want to read RBI’s press release about the launch of this scheme. A few things quickly jump out. There is a direct link to the online portal where you can create an account.

The second salient aspect is that you can participate in the primary issuance of any government bonds. The primary issuance is when you can buy the bonds very close to actual price or yield. The reason I say “very close” and not exactly at the issue price is because the price will be determined by competitive bidders. As a retail investor you don’t get to bid.

Non-competitive bidding means the bidder would be able to participate in the auctions of dated government securities without having to quote the yield or price in the bid. Thus, he will not have to worry about whether his bid will be on or off-the-mark; as long as he bids in accordance with the scheme, he will be allotted securities fully or partially.

rbi retail direct

You could also participate in the secondary market using the online portal. The advantage of the secondary market is that you can later sell the bond that you obtained in the primary issuance if you want to sell the bonds before maturity date. This can happen for example if you identify a good price opportunity on the secondary market (for example when RBI cuts interest rates). Or may be you need money now and cannot wait for the bond to mature.

Another point of interest is that there are no fees to buy and sell. Of course that is the main reason I was even remotely interested in the scheme. You can invest via internet banking and UPI. Nothing special there but just saying.

What is on offer?

For more details about the scheme, you might want to read the previous RBI press release about the scheme which was announced back in July 2021. According to the press release, using this scheme, you can invest in

  • Government of India Treasury Bills
  • Government of India dated securities
  • Sovereign Gold Bonds (SGB)
  • State Development Loans (SDLs)

Lets try to understand each of these one by one. First, you can invest in T-bills (Government of India Treasury Bills). The definition of T-bill according to RBI is as follows (emphasis is mine):

Treasury bills or T-bills, which are money market instruments, are short term debt instruments issued by the Government of India and are presently issued in three tenors, namely, 91 day, 182 day and 364 day. Treasury bills are zero coupon securities and pay no interest. Instead, they are issued at a discount and redeemed at the face value at maturity. For example, a 91 day Treasury bill of ₹100/- (face value) may be issued at say ₹ 98.20, that is, at a discount of say, ₹1.80 and would be redeemed at the face value of ₹100/-. The return to the investors is the difference between the maturity value or the face value (that is ₹100) and the issue price.


The next investment avenue is dated G-Secs.

Dated G-Secs are securities which carry a fixed or floating coupon (interest rate) which is paid on the face value, on half-yearly basis. Generally, the tenor of dated securities ranges from 5 years to 40 years.


We already know what Sovereign Gold Bonds (SGB) are, and my opinion of them, so I won’t go too much into detail. Finally you can also invest in State Development Loans (SDLs). SDLs are just like date bonds discussed above, except these are bonds issued by state governments instead of central government.

The bad

Everything looks fine so far. We can invest in different durations of bonds including 91 days, 182 days, 364 days, all the way to 40 years. However, what bothers me is the bidding process. So we actually don’t know what the price of the bond will be in the case of T-Bills. Likewise we will not know the coupon rate for dated G-Secs and SDLs. Of course this bidding thing has always been there except we as retail investors were never exposed because Mutual Funds take care of all that.

The other problem I see is with secondary market liquidity. Not sure how the bids will be matched up with other investors who want to buy your bonds. This is a big unknown. if banks and mutual fund houses can do a buy bid in the secondary market and they will be matched against the retail investor’s sell bid, then it is fine. There may be enough liquidity. Remember that for you to sell your bond there should be a buyer.

Even if we assume that you will not sell the bonds in the secondary market and will keep them till maturity, what will you do with the bi-annual interest payments? Remember the dated G-Secs and SDLs make interest payments twice a year. So you have to pay taxes at your applicable slab rate on the interest. Next you have to figure out where to invest that amount (reinvestment risk). For a person like me, or retired people this can be handy because that can become the income. Similarly T-bills once matured, will hit your bank. So you will have to pay tax and reinvest. With mutual funds, there is no tax liability and the fund manager will conveniently do the reinvestment for you.

Another problem is that you need to have one more account. You probably already have an account for mutual fund investments. Then some of you might have demat accounts. So more clutter. Also, I am not sure how good the tax reporting feature will be. Right now I can get a CAMs statement to figure out all my capital gains which comes in handy when tax filing is due. As of now the reporting part is a big unknown with this scheme.

Finally the yields are quite low. The 91D T-bill has a yield of around 3.65%, the 364D yield is 4.1%, and a 10-year bond has a return of 6.35%. Why would I go for these bonds when I can get the same or better returns on a fixed deposit or debt mutual fund? Well, the only advantage is the safety of the investment.


I initially thought this scheme would be a good idea for me, but the more I think about it, the more I do not feel like it will work. I mean, having a bi-annual interest will be fine because I don’t have any other income, so my tax liability will be zero if the interest is less than Rs. 2.5 lakhs. But on the other hand, I will miss out the liquidity aspect which is something I really need when I am changing my asset allocation. As of now I am staying out of it.

For those who have a goal that aligns with the various durations of the T-bills, they can try to buy in the primary issue and hold it till maturity. However an FD can do the same for you. For those who need regular source of income can try the SDLs or or dated bonds. Here too, a mutual fund or FD can fit the bill. The main advantage of the scheme is the safety of your investment. Another thing you can try is to do tactical investment. Buy the bonds in secondary market when the price is low and sell when the price goes up depending on RBI interest rate actions or various other factors. But this is difficult to predict and execute.