Let us get the background of this particular platform that is launched by RBI. It has been launched sometimes back and the awareness level is still really low because a lot of time investors do not know how to access it and what kind of products one can buy from these platforms. Give us a sense of this retail direct platform where investors can directly invest into government securities.
Shweta Jain: It is interesting because this was launched to increase retail participation. Investors can now invest in T-bills directly and through different sorts of periods – 14-days, 91-days. There are different periods that they can do as well. But the awareness is quite low because not much effort is taken to promote it.
I want to understand this from a financial planning angle now. We are talking about doing SIPs in treasury bills. What kind of investors should be going to these platforms? If at all they are investing in these kinds of products, what should be the average return expectation? Should return or profit be the priority when you are investing in these kinds of investment instruments or just safeguarding your money should be the priority?
Shweta Jain: I am going to take the questions one by one. One, this is for an investor who is looking at short-term investments. This is not for somebody who is looking long-term. This is for somebody who is absolutely risk-averse. This is as close to a guaranteed return that you can get because the Indian government is promising to repay you at a later date, that is literally what it means. So, this comes with different maturity days. Ideally if you have a three-month horizon for example, a 91-day T-bill will suit you or a 182 days T-bill will suit somebody who has 6 months and 364-day somebody who has a year’s horizon.
Also the minimum amount should be about Rs 25,000. The other quite interesting thing is the way the SIP has been promoted and the fact that some of these can be used to either stagger your maturity or keep rolling these investments. It is also interesting for somebody who may be looking at short-term requirements, not necessarily deployed anywhere else because it is short term, say three months. The money might be lying in the bank, and so this is a great use. It is also quite interesting for somebody, who might need the money after three months, and who may not want to roll this over.
It could be that they do this for three months and then withdraw the gain and then invest the principle again, for any of the tenures. It could be that you are taking out a little bit of profit.
Looking at the bouquet that has been offered in RBI retail direct platform, which are the ones you would recommend for a long-term investment perspective? Considering these are mostly debt instruments and when we talk about financial planning or your portfolio planning, it is important to give that balance and stability in your portfolio through a debt investment. Among all of these investment instruments available in this bouquet, which ones would you prefer from a long-term perspective? How can you strategise these instruments for a long-term goal perspective?
Shweta Jain: Absolutely. When goals are nearer, you want to withdraw the risk element out of it and these products can be a great help to mitigate that risk. Somebody who is absolutely risk averse or someone just starting can start SIP into these instruments. This SIP will be more comfortable for them and then they can go on towards long-term investments. For somebody who is looking at a hybrid portfolio, I would not recommend it, but somebody who wants to invest safely outside of FDs and RDs, this is a great opportunity. Since we are talking about a full-fledged investment strategy in these instruments, it is very important to caution our investors in terms of risk. We know no investment is risk-free. What are the risks associated with these investments as well?
Shweta Jain: One is something which I would call the liquidity risk. While you can sell it in the secondary market, you are basically restricted to the amount of time that you have committed for. You can try and sell it in the secondary market, but that is the liquidity risk that you are talking about. It could be something that may be difficult to sell and that I would definitely call a risk. There are no other risks in terms of credit risk. The other risk of course is the interest rate risk. If the interest rate falls or rises tomorrow, like if the interest changes, then your earlier bonds might become more expensive or your future bonds might become more expensive. That could happen as well or could be more attractive, expensive or attractive. I think that interest rate risk is something that you could carry as well. But the best part is most new investors look at SIPs and link it to mutual funds. But because mutual funds are subject to market risk, they may not enter that, but here the SIP is in T-bills and so it could be a great entry point and then get into other longer duration investments whether it is equity or debt, whether it is mutual funds or other products.
