RBI: Inflation linked bonds for sale from December 23, 2013
The Reserve Bank of India (RBI) will issue Inflation Indexed National Savings Securities Cumulative (IINSS-C) bonds (or inflation linked bonds) for retail investors by opening the subscription on December 23, 2013 and close it on December 31, 2013.
Objective: The move will help to protect retail investors from price rise.
The IINSS-C bonds will offer investors a return i.e. 1.5% more than inflation based on the consumer price index. Interest will be compounded half yearly, enhancing effective yield on investments.
Inflation linked bonds
- The limit for investment per applicant per annum: Rs 5,000 – Rs 5 lakh.
- Eligibility for subscription: Individuals, Hindu Undivided Family, charitable institutions and universities.
- The interest rate on these bonds would be linked to the Consumer Price Index (CPI).
- The interest rate would comprise two parts — a fixed rate of 1.5% per annum and inflation rate based on CPI with a lag of three months. It would be compounded on the principal on half-yearly basis and paid at the time of maturity.
- For senior citizens (65 years and above of age), early repurchase will be allowed after one year from date of issue and other investors can redeem them after three years but with penalty of 50 per cent of the last coupon paid.
- RBI will act as a central depository, as these securities will be issued in the form of Bonds Ledger Account (BLA) and held with RBI.
- Distribution or sale of bonds would be through banks: SBI, nationalized banks and three private banks HDFC Bank, ICICI Bank and Axis Bank and Stock Holding Corporation of India.