RBI Inflation Indexed Bond

 RBI Inflation Indexed Bond

 RBI Inflation Indexed Bond

Company Profile

The issue of India’s Inflation Indexed National Savings Securities-Cumulative (IINSS-C) for retail investors will open for subscription on December 23, 2013 and close on December 31, 2013. The subscription can be closed earlier than December 31, 2013 with prior notice.

It may be recalled that the Reserve Bank of India, in consultation with Government of India, on November 29, 2013 announced issuance of Government of India’s Inflation Indexed National Savings Securities-Cumulative (IINSS-C) for retail investors.

Interest rate on these securities would be linked to final combined Consumer Price Index [CPI (Base: 2010=100)]. Interest rate would comprise two parts, i.e., fixed rate (1.5% per annum) and inflation rate based on CPI and the same will be compounded in the principal on half-yearly basis and paid at the time of maturity. The final combined CPI will be used with a lag of three months, i.e., final combined CPI for September 2013 will be used as reference CPI for all days of December 2013.

Early redemptions will be allowed after one year from the date of issue for senior citizens (i.e., 65 years and above of age) and 3 years for all others, subject to penalty charges at the rate of 50% of the last coupon payable for early redemption. Early redemptions, however, can be made only on coupon dates.

The eligible investors would include individuals, Hindu Undivided Family, Charitable Institutions registered under section 25 of the Indian Companies Act and Universities incorporated by Central, State or Provincial Act or declared to be a university under section 3 of the University Grants Commission Act, 1956 (3 of 1956).

RBI Inflation Indexed Bond Details

Item
Inflation Indexed National Savings Security-Cumulative
Limit of investmentMinimum Rs. 5,000/- and Maximum investment Rs. 5,00,000/- per investor per annum
Date of Issue of bondsDate of receipt of funds/realization of cheque/draft
Interest OptionCumulative i.e. interest is payable at the time of maturity
Post Maturity
Interest
Post Maturity Interest is not payable
Maturity periodAfter 10 years
Issue Period23rd December 2013 to 31st December 2013
Interest RateFixed 1.5% p.a. + inflation rate calculated with respect to final combined Consumer Price Index (CPI). Final combined CPI will be used with a lag of three months to calculate incremental inflation rate. Interest will be compounded with half yearly rests and will be payable on maturity along with the principal


Inflation Indexed National Saving Securities – Cumulative (IINSS-C)

1. Who is eligible to invest in the Inflation Indexed National Saving Securities-Cumulative (IINSS-C)?

  • Only retail investors would be eligible to invest in these securities. The retail investors would include individuals, Hindu Undivided Family (HUF), charitable institutions registered under section 25 of the Indian Companies Act and Universities incorporated by Central, State or Provincial Act or declared to be a university under section 3 of the University Grants Commission Act, 1956 (3 of 1956).

2. What is the interest rate on these securities?

  • There will be two parts in the interest rate. One, fixed rate of 1.5% per annum and second, inflation rate.
  • For example, if inflation rate during the six months is 5%, then interest rate for this six months would be 5.75% (i.e. fixed rate -0.75% and inflation rate -5%).

3. Is there any floor as inflation may turn into deflation at times?

  • Yes, fixed rate of 1.5% would act as a floor, which means that 1.5% per annum interest rate is guaranteed if there is deflation.
  • For example, if inflation rate is (-) 5%, then interest rate should be (-) 3.5% by simple calculation. But in such case, negative inflation will not be recognised and investors would get fixed rate of 1.5% (please see example 2 at 23).

4. When do I get interest?

  • Interest will be accrued and compounded in the principal on half-yearly basis and paid along with principal at the time of redemption.

5. What will I get on redemption?

  • On redemption, investors will get principal and compounded interest

6. What is the inflation index to which inflation rate will be linked?

  • Inflation rate will be based on the final combined Consumer Price Index [(CPI) base: 2010=100].
  • The final combined CPI will be used as reference CPI with a lag of three months. For example, the final combined CPI for September 2013 will be used as reference CPI for whole of December 2013.

7. What will be the process of investing?

  • Investors can invest through the authorised banks and Stock Holding Corporation of India (SHCIL).
  • They will fill an application form and submit the same along with other documents and payment to the bank.
  • On receipt of money, the bank will register the investor on the RBI’s web-based platform (E-Kuber) and on validation, generate the Certificate of Holding.

8. What will be the form of these securities?

  • These securities will be issued in the form of Bonds Ledger Account (BLA) The securities in the form of BLA will be issued and held with RBI and thus, RBI will act as central depository.
  • A certificate of holding will be issued to the holder of securities in BLA.

10. Should the customer apply through the bank in which he/she has an account?

  • Customers can approach any of the authorised banks, including SHCIL for such investment irrespective of whether they hold an account or not with that bank.

11. Who will provide the other customer services to the investors after issuance of securities?

  • The banks through which these securities have been purchased will provide other customer services.
  • Investors can approach the banks for other services such as change of address, early redemption, nomination, lien marking, etc.

12. Whether joint holding will be allowed?

  • Yes, joint holding will be allowed.

13. What is the minimum and maximum limit for investment?

  • The minimum investment limit is Rs. 5,000/- (five thousand).
  • The maximum limit is Rs. 500,000/- (five lakh) per applicant per annum.

14. Whether premature redemption is allowed?

  • Yes premature redemption is allowed.
  • For senior citizens above 65 years, the premature redemption is allowed after one year. For others, it is allowed after 3 years.
  • Penalty at the rate of half of the last payable coupon will be charged from the investors. For example, if last payable coupon is Rs. 1,000/-, then Rs. 500 would be charged as penalty.

15. How do I redeem these securities?

  • In case of redemption prematurely before the maturity date, investors can approach the concerned bank few days before the coupon date and apply.
  • In case of redemption on maturity, the investor will be advised one month before maturity regarding the ensuing maturity of the bond advising them to provide a Letter of Acquaintance, confirming the NEFT account details, etc. If everything is in order the investor has to be paid within maximum five days of the maturity (to take care of any payment in the form of physical instrument).

16. Whether these securities transferable?

  • Transferability is allowed to the nominee(s) only for individual investors on death of holder.
  • Transferability is not allowed for other investors

17. Can I use these securities as collateral for loans?

  • Yes, these securities are eligible to be used as collateral for loans from banks, financial Institutions and Non Banking Financial Companies, (NBFC).

18. What are the tax implications?

  • Existing taxation applicable to Government of India securities issued as part of the market borrowing will be applicable to these securities.

19. Whether TDS will be applicable?

  • Existing taxation applicable to Government of India securities will be applicable to these securities.
  • Sub-section (iv) of the Section 193 of the Income Tax Act, 1961 stipulates that no tax shall be deducted from any interest payable on any security of the Central Government or a State Government, provided that nothing contained in this clause shall apply to the interest exceeding rupees ten thousand payable on 8% Savings (Taxable) Bonds, 2003 during the financial year.
  • As per the above Section, TDS shall not be deducted from any interest payable on IINSS-C, until and unless notified by the Government of India otherwise.

20. Who will do the KYC?

  • As customers will be owned by the banks, KYC will also be done by the banks.

21. When will customers be issued securities?

  • The customers should be issued the securities after receiving clear money. After receiving clear money, banks should register the customer on CBS and generate Certificate of Holding.

23. An example of cash flows/ compounding of principal for illustration purpose is as under:

Example 1: Fixed rate 1.5% per annum

Issue/ Coupon/ maturity date

Fixed rate

CPI

Inflation rate

Interest rate (Compounding rate)

Principal

I

II

III

IV

V=II+IV

VI=VI*V

25-Dec-13

150

5000

25-Jun-14

0.75

160

6.67

7.4

5371

25-Dec-14

0.75

166

3.75

4.5

5613

25-Jun-15

0.75

175

5.42

6.2

5959

25-Dec-15

0.75

185

5.71

6.5

6344

25-Jun-16

0.75

190

2.70

3.5

6563

25-Dec-16

0.75

200

5.26

6.0

6958

25-Jun-17

0.75

210

5.00

5.8

7358

25-Dec-17

0.75

218

3.81

4.6

7693

25-Jun-18

0.75

228

4.59

5.3

8104

25-Dec-18

0.75

235

3.07

3.8

8414

25-Jun-19

0.75

246

4.68

5.4

8870

25-Dec-19

0.75

255

3.66

4.4

9262

25-Jun-20

0.75

265

3.92

4.7

9694

25-Dec-20

0.75

280

5.66

6.4

10316

25-Jun-21

0.75

290

3.57

4.3

10761

25-Dec-21

0.75

305

5.17

5.9

11399

25-Jun-22

0.75

316

3.61

4.4

11895

25-Dec-22

0.75

330

4.43

5.2

12512

25-Jun-23

0.75

340

3.03

3.8

12985

25-Dec-23

0.75

355

4.41

5.2

13655

 

Example 2: Fixed rate 1.5% per annum

Issue/ Coupon/ maturity date

Fixed rate

CPI

Inflation rate

Interest rate (Compounding rate)

Principal

I

II

III

IV

V=II+IV

VI=VI*V

25-Dec-13

150

5000

25-Jun-14

0.75

160

6.67

7.42

5371

25-Dec-14

0.75

166

3.75

4.50

5613

25-Jun-15

0.75

160

-3.61

0.75

5655

25-Dec-15

0.75

150

-6.25

0.75

5697

25-Jun-16

0.75

160

6.67

7.42

6120

25-Dec-16

0.75

165

3.13

3.88

6357

25-Jun-17

0.75

168

1.82

2.57

6520

25-Dec-17

0.75

175

4.17

4.92

6841

25-Jun-18

0.75

170

-2.86

0.75

6892

25-Dec-18

0.75

175

2.94

3.69

7146

25-Jun-19

0.75

180

2.86

3.61

7404

25-Dec-19

0.75

190

5.56

6.31

7871

25-Jun-20

0.75

188

-1.05

0.75

7930

25-Dec-20

0.75

195

3.72

4.47

8285

25-Jun-21

0.75

200

2.56

3.31

8559

25-Dec-21

0.75

205

2.50

3.25

8837

25-Jun-22

0.75

215

4.88

5.63

9335

25-Dec-22

0.75

220

2.33

3.08

9622

25-Jun-23

0.75

230

4.55

5.30

10131

25-Dec-23

0.75

220

-4.35

0.75

10207

 

 

 

Who can apply / invest?

Resident Individual, HUF, Charitable Institution, University

Important Information (Instructions)

a) Please fill up the application in all respects.

b) Incomplete applications are liable to result in delay of issue of the securities (at the cost of the investor).

c) In case the application is submitted by a Power of Attorney (POA) holder, please submit original POA for verification, along with an attested copy.

d) In case the application is on behalf of a minor, please submit the original birth certificate from the School or Municipal Authorities for verification, together with an attested copy.

e) Please note that nomination facility is available to a Sole Holder or all the joint holders (investors) of an IINSS-C Bond.

f) In case nominee is a minor, please indicate the date of birth of the minor and a guardian can be appointed.

g) Nomination facility is not available in case the investment is on behalf of minor.

h) Please notify the change of address immediately.

i) Post Maturity Interest Is Not Payable After Date Of Maturity. Hence Please Obtain Redemption Proceeds On The Due Date.

j) Indicate your date of birth/age.

k) Provide your bank account details for receiving payment through Electronic mode

l) Any information regarding tax applicability may be provided to the bank/branch.

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