Repayment rules changed for inflation bonds

To attract investors, the Reserve Bank of India (RBI) has decided to keep open the repayment and early redemption for retail inflation-linked bonds till the next coupon date. It has also added a feature, whereby premature repayment and early redemption requests may be entertained by banks after the coupon date, subject to a specified penalty. No interest would be paid for the period between the coupon date and that of repayment.

These bonds were launched in December 2013 and  linked to Consumer Price Index based inflation. The demand for these has been tepid.

“This (change) might still not be successful in attracting the bulk of investors, as such products require awareness and that is not there. If fund houses are allowed to invest in these products, then, through them, these products can penetrate to retail investors,” said R Sivakumar, head of fixed income and products, Axis Mutual Fund.

Earlier, investors could seek early repayment or premature redemption only after a year of holding the instruments if over 65 years of age or after three years of holding in all other cases.