Melwyn O. Rego is the executive director IDBI Bank Ltd. Prior to this, he served as the CEO and MD of IDBI Homefin-ance Ltd. The bank has recently launched the sale of Government of India securities — the safest investment option — on its webportal.
Mr Rego speaks to Olga Tellis to explain why an investor need to have government securities in his investment basket.

Q Bonds are generally safe instruments. So what makes the government, securities (G-Sec) that you are selling through the IDBI Samriddhi G-Sec Portal special?

If you evaluate the various investment opportunities you will find G-Sec totally safe because the government just cannot default ever on its bonds in any country. Another aspect is that it gives good returns on long maturity investments of about 10 years. All you need to have is a demat account and access to the internet.

Q So, who would G-Secs benefit?

It would appeal to those who want decent returns in the long term. For example, if you look at it from the reward/risk point of view, there is zero-risk and good retur-ns. The minimum investment level is Rs 10,000. You can invest for 20 or 30 years. While you get your principal back at the end of tenure, the interest would be deposi-ted in your Demat acco-unt every six months. The investor would have an option to reinvest the interest money in G-Sec.

Q What is the rate of interest offered for G-Secs?

It depends on the tenure of the bond. But at an annualised rate, it comes to 9-10 per cent for a 30-year bond. We call it an SLR, which stands for safety, liquidity and returns. The government bonds are the most liquid and 100 per cent safe. Bank deposits are safe but they are for shorter duration. There is no other instrument that offers risk-free investment for over 10 years.

Q What happens if the investor needs money urgently, does he have to sell his bonds?

No. If he needs the money, we can give him an overdraft facility for the short term.

Q What is the process of investing through the IDBI portal?

You have to go to the IDBI Samriddhi G-Sec portal and put in your transaction and the next day you can make your payment through either an internal transfer, if you have a savings account with IDBI Bank, or through the RTGS or through NEFT. You will get your bonds in your Demat account the next day. There is not a single day’s delay even with the six-monthly interest payment.

Q How are government securities different from corporate bonds?

In the case of corporate bonds, you are not assur-ed of the safety. Liquidty is very little, though the returns are higher than the government bonds because of the risks inv-olved. Corporate paper usually has a tenure of just five years. In G-Secs, there is no tax deduction at source and so a person can do his tax planning independently. This facility is not available on any other instrument. Besides, there is also a nomination facility.

Q How was the response to your G-Secs portal from investors?

Our first customer inte-restingly was a software engineer from a small town of Vadakancherry in Trichur district in Tamil Nadu. Though it speaks of the response that we got, the bank plans to use its nearly 1,000 branches to spread awareness about these bonds. Around 200 people from investor associations from have attended our camp in Mumbai and this will have a multiplier effect.
Our portal will play a key role in mobilising retail savings for government bonds. The RBI has been urging banks to have a portal to sell government bonds to retail investors and IDBI Bank decided to be the first to do so. In India, there is a huge scope in G-Sec market as the participation of retail investors in G-Sec market either directly or through mutual funds is very minimal.