The product is sold in India by DSP-Merrill Lynch, Citicorp Finance (a part of the Citigroup) and Rank Investments, the NBFC arm of Barclays Bank. The product is gaining ground as a new asset class among investors.
Though the structure and interest rates on the product vary from issuer to issuer, bankers said that 40 per cent-plus annual returns provided by the Nifty are instilling confidence among issuers and investors to structure the product benchmarked against the stock index.
Typically, the minimum ticket size for such bonds is Rs 10 lakh and the product is sold through mainly foreign and private banks to their clients in India. The investors in these bonds will have a lock-in period of 15-39 months.
The interest rates on such products also vary from 7-10 per cent, depending on the rating provided by credit rating agencies. The most popular, say bankers, is the zero-coupon Nifty-linked product.
If the Nifty gives negative returns, investors will get the principal amount back, according to the way the product is structured.