Reserve Bank of India (RBI) Governor Shaktikanta Das on Friday announced that retail investors can open Gilt Accounts with the banking and monetary policy regulator, providing them direct access to invest in the primary and secondary government bond market. This major structural reform will help deepen the bond markets in India.

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He also announced the launch of ‘Retail Direct’, a platform to allow retail investors direct access to the government securities market.

Till now, investors could buy government securities, So, though it’s not a new investment option for them, buying it directly from the RBI is the new route that they can take.

What is a Gilt Account?

A Gilt Account can be compared with a bank account, except that the account is debited or credited with treasury bills or government securities instead of money. In other words, it’s an account for holding government securities.

Government security, also known as G-Sec, is a tradeable instrument issued by the Centre or state governments, acknowledging the government’s debt obligation. Since they carry practically no risk of default, G-Secs are also called risk-free gilt-edged instruments. They are also safer than bank fixed deposits as G-secs come with a sovereign guarantee. The RBI move will suit pensioners looking for a safe investment option that can give them assured long-term returns.

What is a Gilt Account holder?

A Gilt Account Holder (GAH) can be an entity or a person, including a person residing outside India, maintaining a Gilt Account with a ‘Custodian’ — a primary member permitted by the RBI to open and maintain Constituent Subsidiary General Ledger Account with the Public Debt Office. However, in case the holder is a person residing outside India, the activities related to the operations or maintenance of such an account will be governed by rules and regulations specified in the Foreign Exchange Management Act, 2000.

The Gilt Account Holders permitted by RBI include NBFCs, provident funds, pension funds, mutual funds, insurance companies, cooperative banks, regional rural banks, trusts, corporates, and individuals who are non-NDS members. A Gilt Account Holders is entitled to open only one account.

How to open a Gilt Account?

The RBI will soon issue guidelines for the process to open a G-Sec account, making India one of the few countries where retail investors can enjoy direct access to both primary and secondary government bonds. The platform will be called ‘Retail Direct’.

What does Gilt stand for in accounting?

The term ‘Gilt’ is of British origin. The British called ‘Gilt-edged securities’ to those bonds and securities issued by the government on behalf of His/Her Majesty’s Treasury, whose paper certificates had a gilt edge. In India, the term is used for government securities such as Central Government loans and State Government loans because they carry no risk. In the US, they are known as US Treasury securities

What are Gilt securities?

When the Central Government requires funds, it approaches RBI. The RBI, in turn, issues government securities equivalent to the required amount, and offers a fixed rate of interest, with maturities spanning from one year, three years, five years or 10 years. Funds managers or individuals subscribe to these securities. Basically, to provide loan to the government, the RBI issues government securities to collect the required funds.

Though they have a low rate of return, they are low on risk. Being government securities, they are sensitive to interest rate changes. So, the best time to invest in Gilt funds is during a falling interest rate regime. Gilts often respond strongly to political events.

(Edited by : Aditi Gautam)