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Why is RBI not issuing Inflation Indexed Bonds??? Instead of just concentrating on the interest rates to control inflation, wish the Govt and RBI work on giving some judicious returns to the people.

This is the perfect time – CPI for November increased to a three-month high of 4.91%, clearly indicating that a cut in levies by states have not provided much relief in tempering headline inflation. The cost of living is making life really tough for people in the lower and middle rung of the economic ladder are simply not enough for some to even eat a nutritious meal while for many, saving money has become impossible.

Senior citizens are bearing the brunt the most as their stable and secure sources of income, be it the FDs or Post Office saving schemes are offering much lower incomes than what they had planned for. The returns on instruments are simply not in tandem with the rising inflation; infact FDs are a bad idea right now. Real estate does keep sync with inflation but how many of us can afford to buy another house which will provide a steady rental income?

And that’s why we are wondering how come the RBI hasn’t yet come out with Inflation Indexed Bonds (IIBs)? These were issued way back in 2013 but because there were no takers then, the RBI never issued them again. The biggest negative against the IIBs – it was linked to the WPI and that really did not help those seeking protection from CPI.

There was a new version in 2020 but closed now - the Inflation Indexed National Savings Securities-Cumulative(IINSS-C) bonds and they offer investors a return that's 1.5% more than inflation based on the consumer-price-index. Interest will be compounded half yearly, enhancing effective yield on investments. The minimum investment limit is Rs. 5,000 and the maximum is Rs.5 lakh per applicant per annum. Isn’t now the time for these?

IIBs are like a hedge against inflation and deliver inflation-adjusted returns to investors in tune with the global markets. Given the current market situation, where uncertainty is high, the Govt should consider reintroducing the IIB.

IIBs are an excellent product but the RBI goofed up on three P’s last time - product, price and promotion. The RBI had an excellent product but pathetic pricing and promotion was non-existent. The income earned from the bonds was taxed at a high rate and that virtually nullified the very purpose of the IIBs. Plus, the structure of the IIBs was so complex, many did not even understand how these IIBs worked. So even here, the RBI failed to educate the people and that is also attributed as one of the causes of failure of IIBs. Today, the investors and the markets are more mature than 2013 and RBI needs to give this a serious go.

There is no doubt that IIBs make a lot of sense. More importantly, there is mindless investment in equity, gold and realty at illogically high prices. IIBs make perfect sense as it is the perfect hedge against inflation. It will help investors have a more diversified asset portfolio and give them more productive assets. Hope RBI gets it right this time around!

PS: Earlier there were no takers for the RBI issued Gold bonds and but today, they are a big hit, becoming a must for any diversified portfolio. That’s the way ahead for IIBs too….

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