Retail investors will be able to invest in inflation-index bonds (IIBs), according to the Reserve Bank of India. However, there will be no special tax sops for investments in these bonds as of now, said a top RBI official.
IIBs are aimed at weaning investors from investing in gold and real estate and channelling public savings into financial instruments. These bonds will have a fixed real interest rate and a nominal principal value that is adjusted against inflation.
Investment limit
Each retail investor can invest from Rs 10,000 to Rs 2 crore in the primary issuances of IIBs that will have tenure of 10 years, said RBI officials in a teleconference.
Investments can be made through banks and primary dealers (financial intermediaries that buy government securities directly from central bank auctions and resell them. PDs act as a market maker in government securities).
In the initial series of IIBs, 20 per cent will be reserved for retail investors under the non-competitive bidding.
The first such tranche will be issued on June 4, and the same would be issued regularly through auctions on the last Tuesday of each subsequent month during 2013-14.
The second series of IIBs, exclusively for retail investors, will be issued in second half of the financial year. Details of the second series will be announced in the next few months.
Each tranche of IIBs will be for Rs 1,000-2000 crore and total issuance would be for Rs 12,000-15,000 crore in 2013-14.
The IIBs will be part of the overall government borrowing programme of Rs 5.79-lakh crore for the year.
Interest payments on these bonds will be at half-yearly intervals, said another senior official.
Though the wholesale price index-based inflation will be used for providing inflation protection on IIBs, the RBI expects to move over to the consumer price index-based benchmark once the latter stabilises.
FII limit
Foreign institutional investors (FIIs) will be allowed to buy IIBs within the existing limit of $25 billion set for them for investing in government bonds, said a top Reserve Bank of India official.
IIBs will be considered as eligible securities for meeting the statutory liquidity ratio (SLR) requirement by banks. SLR is the portion of deposits that banks have to invest in government securities.
This is currently pegged at 23 per cent of deposits.