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‘RBI gives retail investors direct access to Government ‘Gilt bonds’’

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  • Published
    16th Feb, 2021


In a major move aimed at encouraging small investors to become direct investors in government bonds, the Reserve Bank has proposed to allow them to directly buy government debt, also called “gilt bonds”, making India the first Asian country to do so and among a handful globally.


What are Gilt Funds?

  • Gilt funds are debt funds that invest in government securities. The government bonds used to be issued in golden-edged certificates.
  • The nickname gilt comes from gilded edge certificates.
  • Types:There are two kinds of gilt funds.
    • One, gilt funds that invest mostly in government securities across maturities.
    • Two, gilt funds with constant maturity of 10 years – these funds must invest at least 80% of their assets in government securities with a maturity of 10 years.


  • G-Secs are tradeable investment instruments issued by the Central or state governments and are the most risk-free sovereign-backed bonds available in the country.
  • They can broadly be classified into four categories, namely Treasury Bills (T-bills), Cash Management Bills (CMBs), dated G-Secs, and State Development Loans (SDLs).
  • These securities are available in both short-term and long-term tenures — ranging from three months to 30 years — with an annual yield starting from 3.37 per cent.
  • Although government securities do not carry credit risk, they are not a risk-free instrument. They are subject to interest rate risk.

Impact of the decision

  • Regularisation: The decision will encourage formalisation, digitisation, and financialisation of savings with low yield non-financial assets expected to move to better yield and secure instruments.
  • Secure and fixed income:Besides opening a near endless demand source, it will also provide the retail investors a highly secure - sovereign-guarantee rated - fixed income investment avenue.
  • Denationalisation of banks: If most risk-averse depositors could be persuaded to shift to the G-Secs, the government could go ahead with the denationalisation of banks at a faster pace.


  • Less interest rate:Since g-secs carry low risks, the commensurate returns offered are also low. Interest rates have not been attractive when compared to other fixed-income instruments like company fixed deposits, small saving instruments and non-convertible debentures.
  • Poor liquidity:Poor liquidity in the secondary market is a cause of concern for most investors.
  • Huge investment required: Another big problem is the lot size required to trade in g-secs. Typically, g-sec market sees trades worth Rs 5 crore and above.

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