FAQ

・ What is an inflation-indexed bond?

Inflation Indexed Bonds offer a hedge against inflation by linking the coupon and the principal amount to inflation. This would therefore ensure that the return is not eroded by inflation.

・ What are the different types of inflation indexed bonds?

The inflation indexed bond could have both principal and coupon linked to the inflation rate or it could have only the principal linked to the inflation rate with the coupon being paid on the nominal amount. Further, the inflation rate could be based either on the consumer price index or the wholesale price index.

・ What are the features of the capital indexed bond issued by RBI?

RBI, in December 1997 issued at par, a capital indexed bond at a coupon rate of 6 per cent maturing in the year 2002. The coupon is not adjusted for inflation and will be paid at the rate of 6 per cent per annum on the nominal value of the capital indexed bonds.

The repayment of principal at maturity on the capital indexed bonds will be adjusted for inflation to reflect the changes in the Wholesale Price Index for all commodities. The value of the principal repayment will be multiplied by the Index ratio worked out as below:

・ Where

Reference WPI is the monthly wholesale price index for all commodities pertaining to the month of August 2002 and Base WPI is the monthly wholesale price index for all commodities pertaining to the month of August 1997.

The Index Ratio will be rounded off to two decimal places and shall be announced by RBI two weeks before the repayment of principal. The Index Ratio for the month of January 1999 stands at 1.09.