The Reserve Bank of India (RBI) on Wednesday unveiled the details of inflation indexed bonds (IIBs) to protect the savings of poor and middle classes from inflation and incentivise household sector to save in financial instruments rather than buy gold.
The first tranche of IIBs, which will be for Rs.1,000-Rs.2,000 crore, will be issued on June 4. To commence with, these bonds will be issued for a tenor of 10 years. The total issuance of Bonds during 2013-14 will be for around Rs.12,000-Rs.15,000.
The IIBs will have a fixed coupon rate and a nominal principal value, which will be adjusted against inflation. Final wholesale price index inflation will be used for providing inflation protection.
These bonds, which will be issued by auction method, will provide inflation protection to both principal and coupon payments, the apex bank said.
"Periodic coupon payments will be paid on the adjusted principal. At maturity, the adjusted principal or the face value, whichever is higher, will be paid," it said.
The initial series of IIBs is proposed to be issued to all categories of investors, including retail investors and institutional investors, such as pension funds, insurance companies and mutual funds.
To attract retail investors in the initial series, retail and mid-segment investors can invest up to 20 percent of the total issuance size through the non-competitive bidding route.
As per the scheme, the initial series of IIBs will create demand for IIBs and help in making them tradeable in the secondary market.
Based on the experience in the initial issuances, second series of IIBs for the retail investors is proposed to be issued around October, the apex bank added.
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