• Investment World
• eWorld
• Catalyst
• Mentor
• Life
• Canvas
• Praxis
• Urban Pulse
• Brand Quest

Rajalakshmi Menon

MUMBAI, Feb. 15

AS an individual, your chances of investing in highly secured government securities appear to be distant going by the response of gilt dealers.

Recently, the RBI has allowed investment by individuals in gilts through non-competitive bidding. But primary dealers and banks are not too keen to entertain low-value individual transactions.

The reason is simple. Given the transaction costs and the minimal commission, such deals are not an attractive proposition for dealers and bankers, said a head of a leading PD.

In the Rs 5,000 crore auction held in January, of the Rs 250 crore earmarked for non-competitive bidding, bids of only Rs 150 crore were received, that too, mostly from co-operative banks, trusts and provident funds. Bids from individuals were said to be negligible.

Said one bank official, "The minimum amount of bidding is Rs 10,000. Several such bids would increase our transaction costs.''

He added that the commission earned on these deals was not very lucrative and a single deal done for Rs 100 crore would cover the commission in retailing several times over.

In the auction held in January, the RBI had assigned an yield of 8.07 per cent for the 15-year paper.

Said a primary dealer, "For a 15-year paper, the yield is 8.07 per cent, while an RBI Relief bond gives an yield of 8.50 per cent for five years with tax exemptions.'' He added that this fact was pointed out to several individuals inquiring about the scheme.

Bank officials said that schemes, such as the RBI Relief Bonds, the Public Provident Fund and the National Savings Certificates all yield better rates than those of Government securities. The tax benefits are also much higher, they added.

"There are anomalies in our tax structure. We expect some rationalisation of the tax structure in the upcoming Union Budget bringing all these products on an equal footing. Unless this happens, retailing in Government securities may not really pick up,'' said one bank official.

Other bank officials said that "retailing'' per se may not be applicable to individuals at this stage and is mostly targeted at co-operative banks, RRB's and provident funds.

"With the SLR requirements of co-operative banks increasing, such a route would provide them with a safe mode entry, instead of them operating in the secondary markets and paying a higher premium,'' said a senior bank official.

A major issue in retailing to individuals is that it is difficult for a layman to fathom the concept of YTM.

Accessibility to Government securities is also not as convenient as other products. The difficulty in obtaining an exit option is another problem in retailing.

Send this article to Friends by E-Mail

Stories in this Section
`Solicitor's view not subject to litigation'

Copyright © 2002, The Hindu Business Line. Republication or redissemination of the contents of this screen are expressly prohibited without the written consent of The Hindu Business Line