About 20,314 accounts owned by government securities have been opened till 9 pm on Sunday after the program was launched by Prime Minister Narendra Modi on Friday.
People familiar with the matter told ET that the tax exemption may take away the attractiveness of the scheme. Experts believe that it could also attract global fintech companies such as BondValue. The Singapore-based company, which runs the world’s first fractional bond exchange, is keen to enter India after the central bank launched the program.
“If retail taxation on direct debt investments is brought in line with investments through debt funds, we should see some retail interest emerging,” said Anant Narayan, associate professor at SP Jain Institute of Management and Research. “This in turn may attract intermediaries including global and local fintech companies. Currently, small savings schemes offer much higher rates than Indian government securities.”
not as successful as equity
reserve Bank of India (reserve Bank of India) did not respond to ET’s mailed query.
BondValue, regulated by the Monetary Authority of Singapore (MAS), has reached out to local fintech companies and banks to launch in Mumbai soon after New Delhi’s formal announcement.
“We will soon open our first India office in Mumbai,” said BondValue CEO Rahul Banerjee. “We see a huge demand for 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.”
Globally, bonds have not been as successful as equities in attracting retail investors. However, countries such as Japan have funded their development using domestic retail bond markets. The US and Brazil have also made dedicated efforts.
In India, fixed income products such as small savings schemes or debt mutual funds offer better returns with similar tax structures.
For example, Sukanya Samriddhi Yojana accounts earn 7.6%, while debt GILT funds offer an average of 8.77% over a 10-year period, show data from Valueresearch Online. In contrast, benchmark bonds now offer 6.36% returns.
Vikram Dalal, CEO, Synergy Capital said, “Retail Direct needs to create awareness among senior citizens who can benefit from it.” “A tax break is also needed to bring parity with existing savings schemes including mutual fund debt schemes. Government of India bonds can be an alternative to LIC annuity plans as retail investors can invest in the longest maturity till 2061.”
If an investor sells a bond from a demat account after holding it for more than a year, he will have to pay 10% capital gains tax on the increase in investment. In addition, the annual coupon rate is taxed as per the income tax slab. Collectively, that accounts for investment returns. In February’s credit policy, Governor Shaktikanta Das had suggested retail participation in government bonds. While the minimum investment is ₹10,000, a retail saver can invest a maximum of ₹2 crore per security without tax breaks.