Introduced in the year 2013-14 , inflation-indexed bonds or inflation-indexed national security certificates(NSC like the one you get in post office) are instruments issued by government to protect savings from inflation.
In recent years, real rate of return on debt instruments has been negative as inflation eroded household savings. Inflation-indexed bonds will provide returns that are in excess of inflation, ensuring that price rise does not erode value of savings. Thus, Govt. hopes to increase financial savings as also shift these away from gold, through inflation-indexed bonds.
Main Objectives of Index Inflation Bond
- Increase choice for savers, particularly for risk-averse investors looking to get assured real returns.
- Like gold, it is a hedge against inflation.
- Encourage household savings to shift away from gold that is largely un-productive for economy.
- Address current account deficit (CAD) risk as high gold imports in recent years has significantly widened CAD.
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