The Reserve Bank of India is likely to revamp inflation-indexed bonds (IIBs) to make them more attractive for retail investors. The proposed features will make sure the retail investor gets payouts at regular intervals and higher tax-adjusted returns.

Speaking on the sidelines of an investor conference here, Harun Rashid Khan, Deputy Governor, said the RBI has taken up the issue with the Government.

The lukewarm response to the IIBs could be attributed, among others, to the untimely introduction of the instrument. Lack of understanding of the product among investors, the option of only cumulative interest payment (interest is cumulated and paid on maturity—10th year), and lower tax-adjusted returns than other competing investment avenues are cited as other reasons.

Khan said retail investors want regular payouts from their investments in IIBs, which were issued in December.

Further, to get them to invest in the instrument, the spread (or mark-up) over the benchmark inflation index – consumer price inflation – could be revised upwards.

(This article was published on June 12, 2014)
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