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Government of India through RBI is launching Inflation Indexed National Saving Securities (Cumulative) (IINSS) on Monday, 23rd December, 2013. These IINSC bonds are issued for 10 years tenure. Should you invest in GOI/RBI Inflation Indexed National Saving Securities ?
What are inflation indexed national saving securities?
GOI is issuing these inflation indexed national saving securities that protects savings from inflation and allow you to earn a high rate of interest on your savings. The interest paid would contain base rate + inflation rate based on the Consumer Price Index (CPI).
Features of Inflatoin Indexed National saving Securities (IINSS)
- Issue opens: 23-December-2013
- Issue closes: 31-December-2013. However RBI can close this any time before the closing date.
- Interest rate = Base rate of 1.5% per annum + Inflation rate based on consumer price index (CPI)
- Interest is compounded half-yearly and paid at maturity.
- Tenure of the bonds is 10 years
- Early redemption can be done by Senior Citizens after 1 yr. Early redemption can be done by others after 3 years. Early redemptions can be done only on coupon dates. Penalty charges are at the rate of 50% of the last coupon payable for early redemption.
- These INNSS securities can be pledged as collateral to get loans
Who can apply these INNSS bonds?
These bonds can be applied by individuals, HUF, Charitable Institutions and Universities
How to apply for these INNSS bonds?
You can approach State Bank of India (SBI), its subsidiaries, Public Sector banks and large private banks like ICICI Bank, HDFC Bank and Axis bank.
How much you can invest in these INNSS bonds?
You can invest a minimum of Rs. 5,000. Maximum per annum on these bonds should not exceed Rs. 5 Lakhs.
Should you invest in GOI inflation indexed national saving securities?
Let us take an example with best scenario and worst scenario.
- Example-1 shows that inflation would increase year on year. The compound interest works out to be 9.65% per annum.
- Example-2 shows that inflation comes down in a few years during the tenure and goes up in a few years. The compound interest works out to be 6.8% per annum.
This is an example and it does not guarantee that you would receive the indicated amount.
*Source: RBI Website
Conclusion: Inflation indexed national saving securities are good for those who want to protect their savings against inflation. Investing part of your investment in such instruments is not a bad idea, however you need to compromise on low interest rates when inflation rate is low and just 1.5% per annum returns when there is deflation which is a rare event. I personally do not want to invest in such options as returns are low and there are several other investment options which give better returns.
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