The Reserve Bank of India (RBI) has launched a mobile app for its Retail Direct facility that lets retail investors buy sovereign bonds directly from the government and trade these online. The app, available for Android devices and iPhones, enables participation in India’s primary and secondary bond markets at the touch of a thumb.
This is a welcome expansion of its 2021 initiative to throw this asset class open to people at large. On paper, it’s a win-win. The Centre could do with a larger pool of creditors beyond the usual banks, mutual funds and other institutional buyers. With retail investors venturing beyond traditional saving avenues like bank deposits, it makes sense to offer government securities (G-Secs) as an alternative.
The RBI platform grants access to central paper, treasury bills, state government bonds and sovereign gold bonds. This should attract investors who want a chunk of their long-horizon investment portfolio to be risk-free (as G-Secs are). If G-Sec returns happen to be competitive against the interest earned on fixed deposits and the like, they have all the more reason to use RBI’s new app. Savvy investors could even seek capital gains by riding interest-rate cycles.
Unfortunately, this avenue hasn’t caught the fancy of investors yet. The online facility was launched back in 2021. As of 27 May 2024, the platform had only 138,819 registrations, with just 124,951 accounts opened. This is puny in comparison with the millions of new demat accounts and mutual fund folios that opened over the same period. Bonds differ from shares in appeal.
As safe fixed-income instruments, they can balance the risk borne by share-heavy portfolios. G-Secs, being safer than other debt options, are ideal components of a retirement plan. So, what holds investors back? Unfamiliarity, for one. Unlike a corporate stock, multiple series of G-Secs are listed on the platform at various prices. The coupon rates of interest they pay annually can differ for the same maturity year. What’s relevant is what one expects to earn.
The complexity of this is another drawback. Apart from the principal sum, what an investor gets back depends on what the coupon payments amount to—for the bond’s remaining tenor—after adjusting for the price paid. This figure, expressed as a percentage, is the bond’s ‘yield.’ As the security’s price varies over the length of its tenor by market demand and supply, its yield changes.
If its price rises, its yield drops. And vice-versa. The RBI app duly highlights yields across assorted tenors. A G-Sec with a coupon of just over 5.6% that matures in 2026, for example, offers a yield of a bit above 7%, the going rate in this bracket. For a yield above 7.1%, one would need to buy 30-year paper. In general, yields have dipped lately on news of the government possibly needing to borrow less than planned in 2024-25, thanks to the transfer of a ₹2.1 trillion surplus from RBI.
Since all this is harder to grasp than investing in shares, RBI should make a greater effort to demystify the bond market as a new avenue for lay investors. It should redesign its app to serve this purpose. While a standard interface for all market participants is important, what RBI has launched is anything but user-friendly.
Although the platform is rich in data, it’s also laden with jargon. It would help if its tabulated displays offer us hyperlinks that explain each variable in simple language. To evoke wider interest, this is necessary. Tax incentives for such debt holdings would help too.
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