billion (4.2% of GDP) in 2011-12. In June, the RBI launched the first tranche of the bonds to provide inflation protection to both the principal and interest payments and the bonds were linked to the Wholesale Price Index.
In fact, way back in 1997, the government had launched capital-indexed bonds that provided inflation protection only to the principal amount and not to the interest payments. As a result, the bonds evoked lukewarm response from investors. But this time, the bonds will provide inflation protection to both principal and interest payment and further, linking it to the CPI will attract retail investors and get them inflation-protected returns in the long run.
* RBI will launch retail inflation-index bonds in mid December. Investors can buy these from banks
* These bonds will offer households a shield against negative returns on their savings
* The 10-year bonds will have a face value of R5,000
* Investment in the bonds has been capped at R5 lakh per applicant per year
* Interest on these securities would be based on the CPI with a three-month lag
* Quoting PAN is mandatory if the investment amount is more than R50,000 per year