So far, buying of government bonds directly was inaccessible to retail investors. However, now the Reserve Bank of India has made it possible for you and me to directly buy and hold government bonds through its retail direct gilt (RDG) account.

To explore the merits or demerits of this and how it stacks up compared to investing in the same securities through gilt funds, CNBC-TV18 spoke with Joydeep Sen, who is a corporate trainer and author. Later on also spoke with Anurag Seth, CEO, Aevitas Capital on reinvestment dilemma -- Do you consider the tax implications? Or do you consider the underperformance of your scheme.

RBI’s Retail Deposit Gilt AccountIt is a newly launched scheme, but just to clarify a little bit here, as of now, RBI has done a preliminary announcement, but it is yet to be formally launched as such. So, going by what the RBI has announced so far, you can open an account straight there with the Central Bank of the country, which is claimed to be one of its kind in the entire world, said Joy Sen.

How does it work?

Sen said, “As of today, on paper, I can buy government securities, but the nature of the market is wholesale. So, there are practical difficulties in me buying bonds or buying gilts directly. So, we have to go through an intermediary like a mutual fund. So as and when this scheme becomes operational, I can open an account is RDG account with the Reserve Bank of India and I can trigger a system, a system called Negotiated Dealing System - Order Matching system (NDS-OM). So, that is one Clearing Corporation of India Limited which runs the back-office systems of the entire trading systems of RBI.

So under CCI, there is one NDS-OM, which is as of now wholesale. When it becomes operational people like you and me, we can open accounts there. And we can trade in retail lots. So there is something called RFQ, which stands for request for quotation, and there'll be something called odd lot section. So, we can trade in that Odd lot section or the RFQ section and we can also buy primary government securities in small lots that say Rs 10,000 only as an event this scheme becomes operational. So that's how briefly it'll work.

Is it better to take long terms tax brunt and rejig the portfolio in one go or do it over a period of time and bear the underperformance?

Seth said, “I'll first take the topic on underperformance. So most of the time, underperformance gets completely blindfolded to an extent, where are you talking about an absolute underperformance by the scheme or one is talking about a relative underperformance most of the time what we have seen is client are talking about relative underperformance, were on a category, the returns are higher than this team. But this so for us and for clients is more important to understand and to address where is this underperformance coming from?

Now if the underperformance is coming from what just came as from the state investment objective the core portfolio of the scheme. So one needs to completely understand the scheme details and then take a decision on whether there is a point of rejig or there is a point to stay invested and you know, be under underperforming for some time for it to outperform.

Okay, so one is that you must know, so you have all these value funds Growth Fund, and they may be underperforming because of the particular business cycle they're in, right? I don't know, how do you know this? I mean, how does the retail investor grasp this nuance, and how does it stack up when they're trying to compare it with the tax implications they may have, which is more important.

So I'll go to what the basic objective was while you invested. So while you invested, you would have done a risk profiling and accordingly, you know, someone would have suggested a scheme like a case of equity, where if someone would have entered enter large-cap or small-cap mid cap on in 2018, would not have seen returns for next two period. Now, whether you will call it as underperformance and you will start reading the portfolio, and then come to 2020 you will have all these teams outperforming and you know most of these would have a washout all the underperformance that are there in last two years. So if your assessment at the time of investments are right, and you could wait for five year period, then obviously, it was the right decision for you to you know, stay invested.

But for me, I think the underperformance needs to be done through how is the scheme performed when the market picked up. So if your scheme is underperforming and the markets are picked up, so then you need to analyse where the investments are, the underlying investment done by the scheme - where are the investments and why the scheme has not performed. So I think that is three years down the line you will you would have given time for certain schemes to perform, if they're not performing that is the time then you should take a call whether you should be in the scheme or it's prudent to then book the loss or the profit whatever the case may be and then take the call accordingly, said Seth.

For the entire discussion, watch the accompanying video

(Edited by : Aditi Gautam)

First Published:Jul 27, 2021 7:44 PM IST