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RBI IINSS-C Inflation Indexed National Savings Securities-Cumulative

RBI IINSS-C Inflation Indexed National Savings Securities-Cumulative

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

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  • 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
YearInflation RateAnnual Change
20197.66%2.80%
20184.86%2.37%
20172.49%-2.45%
20164.94%-0.93%
20155.87%-0.48%
20146.35%-4.55%
201310.91%1.60%
20129.31%0.45%
20118.86%-3.13%
201011.99%1.11%
Source- Macrotrends
  • 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

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An example of compounding of principal for illustration purpose is as under:

Fixed rate 1.5% per annum
Maturity dateFixed rateCPIInflation rate *Interest rate (Compounding rate)Principal
IIIIIIIVV=II+IVVI=VI*V
25-Dec-131505000
25-Jun-140.751606.677.45371
25-Dec-140.751663.754.55613
25-Jun-150.751755.426.25959
25-Dec-150.751855.716.56344
25-Jun-160.751902.703.56563
25-Dec-160.752005.266.06958
25-Jun-170.752105.005.87358
25-Dec-170.752183.814.67693
25-Jun-180.752284.595.38104
25-Dec-180.752353.073.88414
25-Jun-190.752464.685.48870
25-Dec-190.752553.664.49262
25-Jun-200.752653.924.79694
25-Dec-200.752805.666.410316
25-Jun-210.752903.574.310761
25-Dec-210.753055.175.911399
25-Jun-220.753163.614.411895
25-Dec-220.753304.435.212512
25-Jun-230.753403.033.812985
25-Dec-230.753554.415.213655
*Inflation rates are calculated on half yearly basis. Source – RBI

Also Read What are the Treasury Bills in India? – Maturity Period | Features | Issued by

Features

ParameterIINSS-C
Issued byRBI
Term10 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 AccountAfter 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 banksSBI & Associates, Nationalised Banks, HDFC Bank, ICICI Bank, and Axis Bank.
Interest rateFixed rate of 1.5% per annum + Inflation Rate.
Minimum InvestmentINR 5000/-
Maximum InvestmentINR 10 lakh per annum for eligible individual. However,
INR 25 lakh per annum for institutions such as HUFs, Charitable Trusts and similar institutions.
Income TaxExisting taxation applicable to Government of India securities issued as part of the market borrowing will be applicable to these securities.
TDSTDS shall not be deducted from any interest payable.
Interest paymentsHalf Yearly Compounding will be pay on maturity only.
Loan FacilityYes
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.
TransferableTransferability is allowed to the nominee(s) only for individual investors on death of holder.
Joint HoldingYes
Nomination FacilityYes

Also Read RBI Bonds 2021 or Floating Rate Savings Bonds | Rate of Interest | Online & Offline

How to Buy the IINSS-C Bonds through Banks?

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Time needed: 5 minutes.

Follow the steps given below for buying IINSS-C Bond through bank.

  1. Authorised Banks

    Investors can invest through the authorised banks and SHCIL i.e. Stock Holding Corporation of India.

  2. Application Form

    The application form can be downloaded from the below link. However, this form is same for any bank.

    Application & Nomination Form

  3. 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.

  4. KYC

    As Investor(s) will be owned by the banks, KYC will also be done by the banks.

  5. Register

    On receipt of amount, the bank will register the investor on the RBI’s system and on validation, generate the Certificate of Holding.

  6. 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.

Also Read SBI Capital Gain Bonds | 54EC Bonds | Features | Interest Rate 2021 | How to Buy SBI Online?

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.
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