UPSC Prelims 2024 Q43: Indian Economy – Financial Markets & Capital Markets
In India, which of the following can trade in Corporate Bonds and Government Securities?
1. Insurance Companies
2. Pension Funds
3. Retail Investors
Select the correct answer using the code given below:
- (a) 1 and 2 only
- (b) 2 and 3 only
- (c) 1 and 3 only
- (d) 1, 2 and 3
Answer: (d) 1, 2 and 3
Explanation
Who can trade corporate bonds and government securities (G-Secs) in India?
| Participant | Can trade? | How |
|---|---|---|
| 1. Insurance companies | Yes | IRDAI requires them to hold a large share of their funds in G-Secs and bonds |
| 2. Pension funds | Yes | NPS and EPFO funds invest heavily in G-Secs and corporate bonds |
| 3. Retail investors | Yes | RBI Retail Direct (2021), stock exchanges (NSE goBID, BSE Direct) and online bond platforms |
Main platforms:
| Instrument | Where it trades |
|---|---|
| G-Secs | NDS-OM (RBI's trading platform), RBI Retail Direct, stock exchanges |
| Corporate bonds | NSE and BSE debt segments; SEBI-registered online bond platforms |
All three can trade in both.
Answer: (d) 1, 2 and 3.
Why each option is right or wrong
- (a) Incorrect. It leaves out retail investors, who can buy G-Secs through RBI Retail Direct.
- (b) Incorrect. It leaves out insurance companies, which are among the largest bond holders.
- (c) Incorrect. It leaves out pension funds, which invest heavily in G-Secs and bonds.
- (d) CORRECT. Insurers, pension funds and retail investors can all trade corporate bonds and G-Secs.
Key point
Insurers, pension funds and retail investors can all trade bonds; RBI Retail Direct (2021) opened G-Secs to individuals.
Remember
Insurers, pension funds and retail investors can all trade bonds and G-Secs in India.
Common mistakes
- Thinking G-Secs are only for banks and big institutions; RBI Retail Direct changed that in 2021.
- Forgetting that IRDAI rules require insurers to invest mainly in government securities.
- Confusing corporate bonds with equity shares; bonds are debt instruments.
Exam tip
RBI Retail Direct (November 2021) = retail access to G-Secs. Remember this whenever retail investors appear.
Sources
- RBI — Retail Direct Scheme (2021)
- SEBI — Online bond platform providers (2022)
- NCERT Class XII — Introductory Macroeconomics (Money and Banking)