Value Free Transfer
Also written VFT · Value Free Transfer (VFT)
A transfer of government securities between SGL accounts with no simultaneous movement of funds, used to bring a holder's G-Secs into the depository's CSGL account and for eligible inter-depository G-Sec transfers.
In plain language
Most transfers of government securities in RBI's system are paired with a payment: securities move one way, funds the other. A Value Free Transfer (VFT) moves only the securities.
That is exactly what is needed when nothing is being sold. If an investor already owns G-Secs in some other SGL account and simply wants them in his demat account, there is no price to pay - he is moving his own holding. The same applies between the two depositories' CSGL accounts when G-Secs have already been paid for through an exchange trade.
Because a VFT moves securities without money, both RBI and the depositories insist on checks that it is bona fide.
How it works
From Chapter 11 (sections 11.4.1 and 11.4.2):
Moving G-Secs from another SGL into the depository. Handled through the depository's dematerialisation module:
- The client submits a DRF-GS with an SGL credit advice and a request letter for "Value free transfer".
- The DP checks that the source SGL is registered with PDO at RBI, Mumbai - the account number begins with "BY".
- The DP fills ISIN and Loan Code, verifies at two levels, enters the request (a DRN is generated), and a different person verifies it; separate DRF-GS for each ISIN/Loan Code.
- The depository's G-Sec cell emails the SGL counterparty, which initiates the transfer in RBI's E-Kuber system; the depository confirms it in E-Kuber, the CSGL account is credited, and the demat request is confirmed.
Between depositories. Under RBI circular of November 16, 2018, inter-depository transfers between the depositories' CSGL accounts are eligible for VFT if they arise out of trades on exchanges between holders of different depositories, and depositories must ensure the transfers are bona fide before effecting the VFT:
- covers Central Government securities, State Development Loans, Treasury Bills and Sovereign Gold Bonds;
- a one-time self-declaration of bona fide transactions is obtained and recorded before any G-Sec IDT debit;
- minimum quantity one unit; processed in batches (three on weekdays, one on 1st/3rd/5th Saturdays);
- DPs must apply board-approved risk management and audit oversight before accepting G-Sec transactions, and confirm compliance.
A worked example
Illustrative. Mr Iyer holds Rs 5,00,000 face value of a State Development Loan in a constituent account with a bank (SGL number beginning "BY"). He wants it in his demat account.
| Step | Action |
|---|---|
| 1 | Iyer gives his DP a DRF-GS, the bank's SGL credit advice, and a letter requesting value free transfer |
| 2 | DP confirms the "BY" prefix (registered with PDO Mumbai), fills ISIN and Loan Code, checks at two levels |
| 3 | DP enters the request; system generates a DRN; a second official verifies it |
| 4 | Depository's G-Sec cell emails the bank (the SGL counterparty) |
| 5 | Bank initiates the transfer in E-Kuber; depository confirms it there |
| 6 | Depository's CSGL account is credited; Rs 5,00,000 of the SDL appears in Iyer's demat account |
No money moves at any step: Iyer already owns the securities.
Later Iyer sells the SDL on an exchange to a buyer whose demat account is with the other depository. The funds settle through the exchange; the securities move by inter-depository transfer between CSGL accounts, eligible for VFT because the trade was on an exchange - provided Iyer's one-time self-declaration is on record.
Why NISM asks about it
Chapter 11 (Special Services - Debt Instruments and Government Securities, 10% weightage) introduces VFT twice: in the procedure for transferring G-Secs in SGL form to a depository account (section 11.4.1) and as the basis for inter-depository G-Sec transfers under RBI's November 2018 circular (section 11.4.2). Questions test when VFT is available (exchange trades between holders of different depositories; transfers of one's own SGL holding into the depository) and the self-declaration safeguard.
Common exam traps
- Value free = securities without a matching funds leg, not "free of charges".
- Inter-depository G-Sec VFT is only for transfers arising out of exchange trades between holders of different depositories.
- One-time self-declaration must be on record before G-Sec IDT debits.
- Source SGL must be registered with PDO Mumbai ("BY" prefix) for transfer into the depository.
- E-Kuber is RBI's system where the SGL counterparty initiates and the depository confirms.
- Minimum quantity for G-Sec IDT is one unit.
Where this is taught
Free preparation for NISM Series VIRelated terms
- Government SecurityA tradeable debt instrument issued by the Central Government or a State Government — treated as free of default risk, and the benchmark against which other rupee interest rates are priced.
- Constituent SGL accountThe Subsidiary General Ledger account a depository holds with RBI on behalf of its clients, through which investors hold government securities in their ordinary demat accounts.
- Inter-depository transferA transfer of securities from an account in one depository (NSDL or CDSL) to an account in the other, possible because SEBI regulations require the two depositories to be inter-connected.
- Public Debt OfficeThe RBI office that handles all issue management, settlement, interest distribution and redemption of government securities, and with which physical G-Sec certificates and Primary/Secondary SGL accounts are registered.
- DRF-GSThe demat request form for government securities, submitted with the physical G-Sec certificates and an RBI Form of Transfer, or with an SGL credit advice to move SGL holdings into the depository.
- NDS-OMRBI's anonymous, order-matching electronic trading platform for government securities, now extended — through demat accounts with bank Participants — to retail investors, not only SGL/CSGL account holders.
- E KuberRBI's core banking system for government securities, through which an SGL counterparty initiates a transfer request when securities move into a depository's Constituent SGL account.
- Primary SGLA Subsidiary General Ledger account opened directly with RBI by an entity meeting RBI's eligibility criteria, usable only for that entity's own government-securities investments.