Author: Paul Ploumis12 Jun 2014 Last updated at 08:19:04 GMT
MUMBAI (Scrap Monster): In a bid to drive retail investors away from gold, the Reserve Bank of India (RBI) has decided to soon launch new inflation indexed bond. According to RBI, the proposed bonds will prove to be more attractive to individual investors as they guarantee higher returns than the current bonds.
The RBI announcement may possibly compel investors to move out of gold and real estate investments, by enhancing investor confidence in financial instruments. The key feature of the new bonds is that it offers quarterly interest payouts. The new inflation indexed bonds are likely to have higher spread over inflation compared with the existing bonds in market.
The RBI had issued bonds during last year, but received only lukewarm response from investors. The interest rate of the bond comprised of two parts-fixed rate (1.5 per cent per annum) and inflation rate based on Consumer Price Index (CPI). The half-yearly compounded interest was paid to the customer only at the time of bond maturity.
The bonds are being launched as instruments to protect the savings of individuals, especially poor and middle class from inflation. The new bonds with improved product features are likely to attract huge investor interest, particularly when gold has lost its safe haven appeal with most analysts and experts ruling out the chances of gold outperforming at least in the near future.