Inflation-indexed bonds from June

Mumbai, May 15. (PTI & Online Bureau): The Reserve Bank of India has decided to launch inflation-indexed bonds, with the first lot scheduled to hit the market on June 4, in a bid to protect investors and woo them from gold. Finance minister P Chidambaram, in his budget speech this year, had promised instruments such as inflation-indexed bonds or inflation-indexed national security certificates, to protect the savings of the poor and middle class from inflation. The government also wants the people to invest more in financial instruments rather than in physical gold. According to government data released on Monday, India's gold imports had shot up by 138 per cent in April this year compared with the figure for April 2012. This craze for gold widened the trade deficit. The central bank said the first lot, to raise Rs 1000-2000 crore, will be open to retail investors as well as institutional investors, to create a demand for the bonds and also a secondary market for them. The next series will be exclusively for retail investors. To attract more retail investors, it has been decided to increase the non-competitive segment for retail and mid-segment investors to 20 per cent from the present level of five per cent applicable to auctions of usual government securities, the RBI said. Over the course of the full year, Rs 12,000-15,000 crore of inflation-indexed bonds would be issued, with auctions being scheduled for the last Tuesday of each month. The bonds will have a fixed real coupon rate and a nominal principal value that is adjusted against inflation, the RBI said. The periodic coupon payments would be done on this adjusted principal. This way, the bonds protect investors from inflation on the principal and coupon payment. At maturity, the adjusted principal or the face value, whichever is higher, will be paid. The RBI said bonds will be linked to the final wholesale price inflation, with a four-month lag. To begin with, these bonds will be issued for tenor of 10 years.