Inflation Indexed National Saving Securities by RBI Explained

RBI has issued Inflation Indexed National Savings Securities -Cumulative under which now a person can get interest based on increasing or decreasing inflation. So as the inflation goes up, so as your earning from Inflation Indexed Bonds. The video is summing up explanation in easy language about this unique inflation indexed bond. Enjoy .
Below is the FAQ published by RBI .
FAQs ON INFLATION INDEXED NATIONAL SAVING SECURITIES - CUMULATIVE (IINSS-C)
PRESS RELEASE, DATED 18-12-2013
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%.
4. When do I get interest?
♦ Interest rate would be payable on half-yearly basis.
♦ However, interest rate will be compounded in the principal on half-yearly basis and paid along with principal at the time redemption.
5. What will I get on redemption?
♦ On redemption, investors will get principal and compounded interest rate.
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 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 either through the agency 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 Bonds in BLA.
9. Which are the agency banks?
♦ The agency banks authorised to do Government business are SBI & Associates, Nationalised Banks, HDFC Bank, ICICI Bank, and Axis Bank.
10. Should the customer apply through the bank in which he/she has an account?
♦ Customers can approach any agency bank, 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 investor per annum.
♦ If investment is made jointly, investment would be treated on proportional basis in order to comply with the maximum limit. For example, if two people invest Rs. 800,000/-, an investment of Rs. 400,000/- would be accounted for each person.
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..

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