Inflation-linked bonds to hit market on Monday.

NEW DELHI: The finance ministry announced the launch of inflation-linked bonds as part of its strategy to wean Indians away from gold by offering them a real rate of return that exceeds consumer price inflation (CPI). Sales will start on December 23 and end on December 31, the finance ministry said in a release on Friday.

The Inflation Indexed National Savings Securities-Cumulative (IINSS-C) bonds will offer investors a return that's 1.5% more than inflation based on the consumer price index .Interest will be compounded half yearly, enhancing effective yield on investments.

With consumer inflation at 11.24% in November, investors could get a return close to 13%, provided it stays at that level. The return will be calculated using combined CPI with a lag of three months.

This means final combined CPI for September will be used as reference CPI for all days of December, the finance ministry explained in the statement announcing the launch. Earlier this week, Reserve Bank of India governor Raghuram Rajan had said that the inflation-indexed instrument will give savers the opportunity to invest in assets that give real returns in excess of inflation.

Finance minister P Chidambaram has said this would lower the import bill by $4 billion. The government has raised the import duty on gold to 10% and the factory gate duty on gold bars to 9% as part of the bid to curb purchases of the metal that had led to the current account deficit swelling to a record last fiscal. In June, the government had launched inflation-indexed bonds (IIBs) linked to wholesale price index-based inflation.

Early redemptions of the inflation-indexed securities announced Friday will be allowed a year from the date of issue for senior citizens and three years for everybody else, 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 finance ministry said in a statement. The minimum investment for the scheme is 5,000 and the maximum 5 lakh per year.

Source : economictimes.indiatimes.com​