Inflation Indexed Bonds for Retail Investors: Major Highlights..

The Reserve Bank of India (RBI) will issue Inflation Indexed bonds for retail investors on December 23. The subscription will be closed on December 31, 2013.

CPI linked bonds with 10 years maturity called Inflation Indexed National saving securities (IINSS) only for retail investors.

IINSS - C Main Details:

Face value per security:  Rs. 5,000 and minimum investment  Rs. 5,000.

Maximum investment :Rs. 5 lac per applicant per annum.

Interest earned on the bond taxable.

Rate of interest (per annum) –real interest rate (fixed rate) + inflation rate.

Real interest rate – 1.5% per annum and the same will act as floor.

          Compounding – Half-yearly

Investor may nominate one or more persons who shall be entitled to the bonds and the payment thereon in the event of his death.

These securities are eligible as collateral for loans from banks, financial Institutions and Non-Banking Financial Companies, (NBFC).

Fixed rate of 1.5% would act as a floor, 1.5% per annum interest rate is guaranteed if there is deflation. Interest rate is payable on half-yearly basis.  Interest rate will be compounded in the principal on half-yearly basis and paid along with principal at the time redemption.

There will be two parts in the interest rate. Fixed rate of 1.5% per annum and CPI inflation rate. Suppose if inflation rate during the six months is 7%, then interest rate for this six months would be 7.75% (i.e. fixed rate 0.75% and inflation rate 7%).

These bonds would be distributed through all agency banks, including Stock Holding Corporation of India Ltd (SHCIL) .

The banks - SBI and PSUs, HDFC Bank, ICICI Bank, Axis Bank, including SHCIL, would act as interface for all customer services related to these bonds (such as receipts, repayments, recording change of address, nomination, transfer, early redemption, lien marking, etc.).

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