The Government of India, is issuing Inflation Indexed National Savings Securities- Cumulative, 2013 or Bonds with effect from December 23, 2013 to December 31, 2013. The salient features of those bonds are as listed below:-
Who Can Invest?
The Bonds may be held by:-
i) an individual, who is not a Non-Resident Indian.
ii) a Hindu Undivided Family (HUF)
iii) ‘Charitable Institutions’ /Trusts
Limit of Investment
Minimum limit for investment in the bonds is `5,000/- and maximum limit for investment is `5,00,000/- per applicant per annum.
Issue Price
The Bonds will be issued for a minimum amount of `5,000/- (face value) and in multiples thereof.
Subscription
Subscription to the Bonds will be in the form of Cash/Drafts/Cheques/online through internet banking. Cheques or drafts should be drawn in favour of the receiving bank.
Transferability
The Bonds shall be transferable to nominee(s) on death of holder (only individual/s).
Interest
The Bonds will bear interest at the rate of 1.5% (fixed rate) per annum + inflation rate calculated with respect to final combined Consumer Price Index [(CPI) Base; 2010 = 100]. Final combined CPI will be used with a lag of three months to calculate incremental inflation rate (i.e. final combined CPI for September would be used as reference CPI for all days of December). Interest will be compounded with half-yearly rests and will be payable on maturity along with the principal.
Tax Treatment
Income Tax: Interest on the Bonds will be taxable under the Income-Tax Act, 1961 as applicable according to the relevant tax status of the bonds holder.
Advances/Tradability against Bonds
The Bonds shall not be tradable in the secondary market. The Bonds shall be eligible as collateral for loan from banks, Financial Institutions and Non-Banking Financial Company (NBFC). The lien to that effect will be marked in the depository (RBI) by the authorised banks.
Repayment
The Bonds shall be repayable on the expiration of 10 (ten) years from the date of issue. Early repayment / redemption before the maturity date is allowed after one year of holding from the date of issue for senior citizens, i.e. 65 and above years of age and for all others, after 3 (three) years of holding, subject to the penalty charges at the rate of 50% of the last coupon payable.
Faujifinace Recommendation
The bonds are good for people desiring a risk free, safe, fixed income with protection against inflation. They are superior to Fixed Deposits of Banks as banks/post offices today are giving an interest rate of 8.5 to 9%. Whereas these bonds would give returns of Inflation+1.5%. CPI being close to 11% as of last quarter. So one is protected against inflation. But remember if Inflation comes down , the interest rate also comes down. It is like a floating housing loan interest rate. Also, the bonds are taxable. So for a person in the highest tax bracket it does not make sense. He may be better off with 9.5% tax free bonds compared to other options.