RBI IINSS-C Bonds
The RBI i.e. Reserve Bank of India has launched the Inflation Indexed National Savings Securities-Cumulative Bond, also know as IINSS-C.
Which offers the investor(s) a return that’s 1.5 per cent more than inflation based on the consumer-price-index.
What is Consumer Price Index?
CPI i.e. Consumer Price Index, is the measure of changes in the price level of a basket of consumer goods and services bought by households. CPI is a numerical estimation calculated using the rates of a sample of representative objects the prices of which are collected from time to time.
Let’s discuss this very easy way.
Bank Fixed Deposits (FD) are the traditional investment vehicle for most Indian households.
According to a recent RBI report approximate 50% of household financial assets in India are in FDs.
One of the major drawbacks of FD is that they fail to beat inflation. Furthermore, interest on FD is also taxable. However, investor(s) have an choose to win the race against the rising prices without taking market risks.
To beat the price rise, invest in the IINSS-C bond.
Also Read Sovereign Gold Bond : Best Returns on Gold Investment | 2020-21 Dates
Eligibility
- Individuals.
- Hindu Undivided Family.
- Charitable institutions.
Interest Rate
- The interest rates has two components. One is the fixed component, which is 1.5%, the other is the floating component, which is linked to CPI.
Let’s take a look at one example, suppose CPI inflation is at 12% then this bond will fetch you 13.5% return (fixed rate (1.5%)+CPI rate (12%)=13.5%.).
To get more idea checkout historic CPI inflation data given below
| Year | Inflation Rate | Annual Change |
|---|---|---|
| 2019 | 7.66% | 2.80% |
| 2018 | 4.86% | 2.37% |
| 2017 | 2.49% | -2.45% |
| 2016 | 4.94% | -0.93% |
| 2015 | 5.87% | -0.48% |
| 2014 | 6.35% | -4.55% |
| 2013 | 10.91% | 1.60% |
| 2012 | 9.31% | 0.45% |
| 2011 | 8.86% | -3.13% |
| 2010 | 11.99% | 1.11% |
- As a result, the interest rate will fluctuate along with the inflation rate. However, it will not turn negative in case of deflation and will not fall below 1.5 per cent even if the inflation turns negative.
- Interest will be accrued and compounded in the principal on half-yearly basis and paid along with principal at the time of redemption.
Also Read Inflation Rate in India : How Impacts Your Savings | 2021
Example
An example of compounding of principal for illustration purpose is as under:
| Fixed rate 1.5% per annum | |||||
| Maturity date | Fixed rate | CPI | Inflation rate * | Interest rate (Compounding rate) | Principal |
| I | II | III | IV | V=II+IV | VI=VI*V |
| 25-Dec-13 | 150 | 5000 | |||
| 25-Jun-14 | 0.75 | 160 | 6.67 | 7.4 | 5371 |
| 25-Dec-14 | 0.75 | 166 | 3.75 | 4.5 | 5613 |
| 25-Jun-15 | 0.75 | 175 | 5.42 | 6.2 | 5959 |
| 25-Dec-15 | 0.75 | 185 | 5.71 | 6.5 | 6344 |
| 25-Jun-16 | 0.75 | 190 | 2.70 | 3.5 | 6563 |
| 25-Dec-16 | 0.75 | 200 | 5.26 | 6.0 | 6958 |
| 25-Jun-17 | 0.75 | 210 | 5.00 | 5.8 | 7358 |
| 25-Dec-17 | 0.75 | 218 | 3.81 | 4.6 | 7693 |
| 25-Jun-18 | 0.75 | 228 | 4.59 | 5.3 | 8104 |
| 25-Dec-18 | 0.75 | 235 | 3.07 | 3.8 | 8414 |
| 25-Jun-19 | 0.75 | 246 | 4.68 | 5.4 | 8870 |
| 25-Dec-19 | 0.75 | 255 | 3.66 | 4.4 | 9262 |
| 25-Jun-20 | 0.75 | 265 | 3.92 | 4.7 | 9694 |
| 25-Dec-20 | 0.75 | 280 | 5.66 | 6.4 | 10316 |
| 25-Jun-21 | 0.75 | 290 | 3.57 | 4.3 | 10761 |
| 25-Dec-21 | 0.75 | 305 | 5.17 | 5.9 | 11399 |
| 25-Jun-22 | 0.75 | 316 | 3.61 | 4.4 | 11895 |
| 25-Dec-22 | 0.75 | 330 | 4.43 | 5.2 | 12512 |
| 25-Jun-23 | 0.75 | 340 | 3.03 | 3.8 | 12985 |
| 25-Dec-23 | 0.75 | 355 | 4.41 | 5.2 | 13655 |
Also Read What are the Treasury Bills in India? – Maturity Period | Features | Issued by
Features
| Parameter | IINSS-C |
| Issued by | RBI |
| Term | 10 Year |
| Form | IINSS-C will be issued in the form of BLA i.e. Bonds Ledger Account. A certificate of holding will be issued to the holder of securities in BLA. |
| BLA Account | After receiving the amount and registration of the investor on RBI system, The RBI will open a BLA for each investor and issue a “Certificate of Holding” indicating number of units of IINSS-C held by the investor. |
| Authorised banks | SBI & Associates, Nationalised Banks, HDFC Bank, ICICI Bank, and Axis Bank. |
| Interest rate | Fixed rate of 1.5% per annum + Inflation Rate. |
| Minimum Investment | INR 5000/- |
| Maximum Investment | INR 10 lakh per annum for eligible individual. However, INR 25 lakh per annum for institutions such as HUFs, Charitable Trusts and similar institutions. |
| Income Tax | Existing taxation applicable to Government of India securities issued as part of the market borrowing will be applicable to these securities. |
| TDS | TDS shall not be deducted from any interest payable. |
| Interest payments | Half Yearly Compounding will be pay on maturity only. |
| Loan Facility | Yes |
| Risk Factor | No Risk |
| Premature withdrawal & Penalty | 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. |
| Transferable | Transferability is allowed to the nominee(s) only for individual investors on death of holder. |
| Joint Holding | Yes |
| Nomination Facility | Yes |
Also Read RBI Bonds 2021 or Floating Rate Savings Bonds | Rate of Interest | Online & Offline
How to Buy the IINSS-C Bonds through Banks?
Time needed: 5 minutes.
Follow the steps given below for buying IINSS-C Bond through bank.
- Authorised Banks
Investors can invest through the authorised banks and SHCIL i.e. Stock Holding Corporation of India.
- Application Form
The application form can be downloaded from the below link. However, this form is same for any bank.
Application & Nomination Form - Submission of Form
Investor will fill an application form and submit the same along with other documents (Aadhaar card, Pan card, etc.) and payment to the bank.
- KYC
As Investor(s) will be owned by the banks, KYC will also be done by the banks.
- Register
On receipt of amount, the bank will register the investor on the RBI’s system and on validation, generate the Certificate of Holding.
- Certificate of Holding
The investor should be issued the bonds after receiving clear amount.
After receiving clear amount, banks should register the investor on CBS and generate Certificate of Holding.
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Disadvantages of IINSS-C Bonds
- An investor cannot trade these bonds in the secondary market.
- An Investor can’t redeem these bonds until 3 years from the date of issuance. However, senior citizens have been given a facility to redeem these bonds after the first year.
In addition, one will not be able to exit whenever one wants to. The redemptions will only be allowed on coupon dates. - Remember inflation rate is always fluctuating and when the inflation rate comes down IINSS may lose its sheen.