Inflation-indexed bonds (IIB)

RBI has started issuing inflation-indexed bonds(IIB). These bonds are issued by RBI in order to wean away Indian public from Gold. Generally Indian public used to purchase gold to hedge against inflation. Since Gold imports creates economic problem, GOI decided to issue inflation indexed bonds w.e.f.2013 for which inaugural issue was done on 3.6.13. At present, it is offered to institutions. Soon retail public also will be invited to subscribe to the issues.

Salient features of bonds:

1. It is safeguarding the principal and interest from inflationary trend. For example, the inaugural bonds issued carried interest rate of 8%. Face value Rs.100/-.
2. If wholesale index is increased by 10% per annum, automatically the face value of the bond also will increase by Rs.110 and interest rate also will increase by 10% i.e. 8.8%.

These bonds are tradeable and hence liquidity is assured. There is no tax benefit.
Since the bonds are not linked to consumer price index, the increase will not reflect the reality of price. Anyhow something is better than nothing.

Happy investing!


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