The G-sec market can be intimidating for an uninformed investor
06-Jun-2023 •Research Desk
The short answer is, it depends. On one hand, there are numbers. On the other hand there may be a desire to bring stability to your portfolio.
Since their launch in November 2021 to May 2022, less than one lakh investors showed an interest in investing in the RBI Retail Direct (RBI-RD). The total primary market consisted of just Rs 2,112.83 crore, and the cumulative traded volume in the secondary market was just Rs 351.58 crore.
Additionally, the yields have been falling since the government announced changes in the taxation of debt funds in March 2023. Subsequently, the 10-year-bond yield fell from 7.41 per cent to 7.32 per cent.
What is more surprising is that the RBI kept the repo rate unchanged at 6.5 per cent. As a result, currently, the one-year bond yields have dropped from 7.2 per cent to 6.79 per cent.
Also, the yield on the benchmark 10-year government security (G-sec) has fallen from 7.35 per cent in early March this year to 7.02 per cent.
The yield on five-year G-sec has fallen from 7.4 per cent to 6.9 per cent, and experts predict the yield to ease further to 6.5 per cent.
Points to ponder upon
Come to think of it, the RBI platform can be complicated to use for investors who may not be very tech-savvy when it comes to investing online. While the platform is being simplified for users to use, currently, this continues to be the reason why investors seem to shy away from investing in G-sec.
Further, liquidity might be a challenge for investors if they fail to find buyers on the secondary market.
What does this mean
If you are a savvy investor who understands online investing and the government securities market, you can certainly benefit from investing through the RBI-RD platform.
However, if you're not seasoned, then it is advised that you invest in G-sec through mutual funds.
While G-sec investments may give rates comparable to bank FDs, they can bring stability to your portfolio. If that's what you want, then don't wait for the yields to possibly go up.
Experts suggest that at around 7 per cent, G-sec rates might have plateaued. In fact, they might ease further. So, if you're really interested in these bonds, it makes sense to invest in them now.
Further, it is also recommended that ideally you must prefer longer papers with maturities of 20-30 years. However, you can consider investing in the 10-year government securities if you're willing to wait till maturity.
What are the alternatives
Of course, there are fixed deposits where banks are raising interest rates. For instance, SBI currently offers 6.5 - 7.0 per cent to the public on select tenors. Most other banks are offering similar rates as well.
And there is nothing to discount the Indian post office, where a five-year deposit is still offered at 7.5 per cent, which is unmatched by most large banks.
So, if lockin is the game you want to play, and government securities are a market you are not savvy with; why not opt for other investment and saving options - government or otherwise?