Online broking platform Zerodha has enabled a facility for individual investors to buy government securities (G-secs) with a minimum investment of 10,000. 

Over the last few years, the Reserve Bank of India (RBI) has introduced a number of provisions to try nudging the retail investor into buying G-secs like treasury bills (T-bills) and long-term bonds. Two years ago, RBI enabled demat account holders to trade in G-secs through their depository participant bank. Some banks already had this facility in place, but this mode of investing is not yet popular with retail investors. 

How does it work? 

You will have to open an account with Zerodha, which includes a trading, a demat and a linked bank account. Once the accounts are in place, you can choose from a range of government T-bills and bonds. Zerodha gives access to T-bills from 91 days to 364 days and long-term G-secs of 10 years and above. 

There is a non-competitive bidding window open with stock exchanges where you can place an order, which gets aggregated at the exchanges and completed. This facilitates retail investors to bid for securities which otherwise see very large-sized bidding. Remember that for T-bills, orders can be placed on Monday and Tuesday, while for long-term G-secs, from Tuesday to Thursday. 

So far, secondary market exits or selling before the bond matures is not easy, especially for retail investors with smaller investment amounts. However, Zerodha is willing to act as a market maker till volumes pick up. What this means is that if you want to exit before the bond matures, Zerodha will facilitate a buyback if you are unable to sell it via the exchange. 

The brokerage charge is 6 per 10,000 investment. 

Should you go for it? 

You can take home interest due on your security or capital gains in listed bonds. G-secs are a barometer for interest rates in the economy and currently the yield on various tenures is higher than basic FD rates. There is also a chance to earn capital gains by selling the G-sec before maturity if the market price moves up.

Moreover, G-secs are probably the safest credit quality as they are directly issued by and repaid by the government of India. With no credit risk and relatively better payout, these make for a good investment option for your fixed income allocation. The broker charge is lower than what you might pay as expense ratio in a short-term debt fund as well. 

The one shortcoming is that the bonds are listed with a market price—just like the price can go up, it can fall  in the interim as well. You may see interim volatility especially in long-term bonds. Start with investing amounts that you are likely to hold till maturity to avoid the impact of this volatility, at least till you are better versed with nuances of these securities. 

So far, G-secs are mostly traded in large amounts by corporates and institutional investors, making it hard for retail investors to bid small amounts. With a facility like this, you too can partake in this market—both for near-term investments and your long-term fixed income allocation.

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