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Singh ushers investors into the world of gilts

New Delhi, Jan. 16: The government in its effort to boost the debt market today allowed small investors to trade in government securities (G-secs) thereby providing them with an alternative market for investments.

“This has opened a new investment opportunity for retail and small investors,” finance minister Jaswant Singh said at the launch of retail trading in G-secs.

Briefing reporters later in the day, finance secretary S. Narayan said the government would soon introduce interest rate derivatives as it would help to curb volatility of interest rates.

Sebi chairman G N Bajpai said investors can buy G-Secs from around 10,000 terminals of the Bombay Stock Exchange (BSE), National Stock Exchange (NSE) and Over-the-Counter Exchange of India (OTCEI) spread across 400 cities.

“G-secs till April would be traded in T+3 (Transaction date plus three) system and then for a year will be traded in the T+2 system after which it will be traded in T+1 system,” Bajpai said.

G-secs are sovereign securities held in dematerialised form and are issued by the Reserve Bank of India, on behalf of the government. Issued to raise money from the market, till now these were sold only to financial institutions (FIs). The demat account refers to shares held in a depository where transfers are registered electronically.

“Currently only the Dated Securities have been allowed for trading. The other types of government securities such as Treasury bills and State Government securities would be introduced for retail trade in phases by the RBI in consultation with Sebi,” Narayan said.

Currently there are 19 primary dealers trading in G-secs. Among them are I-sec of ICICI Bank, Citicorp Securities of Citibank and PNB Gilts of Punjab National Bank.

Analysts said the advantages of investing in government securities are — the securities are highly liquid which can be sold at any time, secondly there is a regular flow of income in the form of half yearly interest payments and thirdly there is an additional income tax benefit of Rs 3000 under Section 80 L which is over and above the limit of Rs 9,000.

“The returns from G-secs will be better than the fixed deposits of banks,” P. P. Vora, chairman of Industrial Development Bank of India, said. Analysts aver that returns on FDs tend to flatten after three years.

“The entry of retail investors will ensure higher liquidity and result in price discovery of the government papers,” Bajpai said. “To cover the risks in G-secs, Sebi has asked the bourses to set up separate trade guarantee funds which would be related to the volume of transactions,” he added.

BSE gesture

Even as the major stock exchanges kick-started retail trading in government securities today, the BSE decided to drop transaction charges for brokers trading in this segment till March 31, 2003.

The exchange would, however, recover only Rs.0.10 per Rs. 1 lakh of turnover, which would be credited to the Trade Guarantee Fund being set up for retail trading in G-Secs.

The launch of retail trading in G-secs met with a good response from BSE members. Market circles said that the 9.85 per cent 2015 security witnessed volumes of over 22,410 and a turnover of over Rs 30.57 lakh. The other security that was highly traded, was the 9.34 per cent 2,011 security that saw volumes of 6,010 and turnover of Rs 7.41 lakh.

Meanwhile, the RBI today directed banks to seek specific approvals from their respective boards and implement a policy to facilitate their participation in the government securities on the stock exchanges in accordance with the norms laid down by the apex bank and Sebi.

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