About 20,314 accounts to own government securities have already been opened till 9 pm on Sunday after Prime Minister Narendra Modi launched the programme Friday.
Tax exemptions, people familiar with the matter told ET, have the potential to burnish the allure of the scheme. Experts believe it could also attract global fintech companies such as BondEvalue. The Singapore-based company, which runs the world’s first fractional bond exchange, is keen to enter India after the central bank launched the programme.
“If retail taxation of direct debt investments is brought in line with investing through debt funds, we should see some retail interest emerging,” said Ananth Narayan, associate professor at SP Jain Institute of Management and Research. “This could in turn attract intermediaries including global and local fintech companies. Also currently, small savings schemes offer much higher rates than GoI securities.”
Not as Successful as Equities
The Reserve Bank of India (RBI) did not respond to ET’s mailed query.
BondEvalue, regulated by the Monetary Authority of Singapore (MAS), has already reached out to local fintech companies and banks to start in Mumbai immediately after New Delhi’s formal announcement.
“We will soon be opening our first India office in Mumbai,” said Rahul Banerjee, CEO, BondEvalue. “We see massive demand from NRIs globally to invest in India. Using our digital platform, we want to allow every man’s money to be invested in government securities and government linked securities.”
Bonds globally haven’t been as successful as equities in drawing retail investors. However, countries such as Japan have funded their development using domestic retail bond markets. The US and Brazil, too, have put in dedicated efforts.
In India, fixed-income products such as small savings schemes or debt mutual funds offer better returns with similar tax structures.
Sukanya Samriddhi Yojana accounts, for instance, earn 7.6% while the Debt GILT funds offer on average 8.77% through a 10-year period, show data from Valueresearch Online. By contrast, benchmark bonds now yield 6.36%.
“Retail Direct needs awareness among senior citizens who can benefit from it,” said Vikram Dalal, CEO at Synergee Capital. “A tax break is also needed to bring parity with existing savings plans, including mutual fund debt schemes. GOI bonds can be an alternative to LIC annuity plans as retail investors can invest in the longest maturity until 2061.”
If an investor sells bonds from a demat account after holding them for more than a year, s/he will have to pay a 10% capital gain tax on investment appreciation. Moreover, the annual coupon rate is taxed as per income tax slabs. Collectively, that eats into investment returns. In the February credit policy, Governor Shaktikanta Das had suggested retail participation in government bonds. While the minimum investment is ₹10,000, the maximum a retail saver can invest is ₹2 crore per security without tax breaks.
