Inflation indexed bonds to be modified and made more lucrative

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Inflation indexed bonds to be modified and made more lucrative
Citing the low response from retails investors for the newly introduced Inflation Indexed National Savings Securities-Cumulative (IINSS-C) bonds linked to the CPI or consumer price inflation index, government together with the RBI is working on altering the instrument to render it more attractive.

One of the aspect under consideration for revision includes higher investment limit. With it the cap on investment for institutional as well as retail investors will be increased. And, as indicated the likely limit for investment in such bonds could go upto Rs. 25 lakhs. Currently, all investor classes including retail investors, HUFs, universities, charitable institutions as well as HNIs can deploy an amount in the range of Rs. 5,000- Rs. 5 lakhs in these government-backed bonds.

H.R. Khan, Deputy Governor-RBI, on the sidelines of a meeting prompted Indian banks to promote the product by making available more application forms at bank branches. Commenting on the bonds, H.R Khan was quoted in one of the business daily saying "This CPI-linked inflation indexed certificate is a good product even as it stands now. Even existing features are quite good enough".

In order to further promote the CPI-linked inflation indexed certificate, banks are also considering the introduction of a loan product that would accept these bonds as collateral.

Inflation Indexed National Savings bonds introduced to provide hedge against inflation offers return in 2 parts, one as fixed rate of return @ 1.5% p.a. and the other linked to inflation rate. Such securities with a maturity term of 10 years cannot be redeemed before a term of three years subject to some conditions.

The inflation indexed certificates that will remain open for subscription until the end of the financial year 2013-2014 (31 March, 2014) can be invested in through SBI and its associate banks, ICICI Bank, HDFC Bank, Axis Bank and nationalised banks. Stock Holding Corporation of India can also be reached for investing in Inflation-indexed bonds. Read to know more about the existing features of IINSS-C bonds.

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