The government issues debt securities from time to time to fund its fiscal deficit. This includes treasury bills that are issued for 91, 182 and 364 days and government securities (G-secs) for longer tenors. But did you know that retail investors can also participate in these primary issues?
The Reserve Bank of India (RBI) notifies the details of the forthcoming issues on a weekly basis. The securities are issued through competitive bidding in auctions conducted by RBI and the participants include banks, primary dealers and other institutions.
To facilitate and encourage retail participation in these auctions, 5% of the notified amount in each auction is reserved for retail investors through a non-competitive bidding process. Under this, investors are only required to specify the amount and do not have to quote the yield or price.
The yield is fixed on the basis of the competitive bidding process that happens for the 95% of the notified amount for institutional bidders. The retail investors are also entitled to this yield.
Retail investors participate in the auction through banks, primary dealers, members of the stock exchange and others who are designated as facilitators and aggregators.
The minimum investment limit is ₹10,000 and the maximum ₹2 crore per security per auction. Investors can only make a single bid for a security in each auction.
Investors must be KYC-compliant and must have a dematerialized account if they want to hold the securities in dematerialized mode or have a gilt account and have the securities credited in it. The securities allotted will be transferred to investors’ accounts within five working days from the date of auction.
Both the NSE and BSE offer convenient and familiar options for investors to participate in these issues. Trading members of stock exchanges can accept bids on behalf of their clients. The order can be placed offline or online using the web platforms, NSE goBID and BSE Direct, and mobile-based applications provided by the respective stock exchanges.
Retail investors can place their order in the specified period before the date of the auction. Payment for an offline order has to be made through the trading member like it is done for equity markets. For investors using the web platform or mobile app, the payment has to be made online from the bank account linked to the investor’s demat account.
The orders can be cancelled before the date of the auction. Once the auction is complete, the allotted securities are transferred to the demat accounts of investors.
The securities that are allotted in the primary market can be sold by investors any time on the stock exchanges where they are listed.