The inflation indexed National Savings Securities have failed to attract retail investors as total mobilisation through these 10-year instruments, which was meant to be a hedge against inflation, has recorded at around Rs 100 crore. The factors like lack of awareness, absence of tax benefits, and a fall in retail inflation can be attributed to the poor response.
In 2013, the Government had issued two inflation-indexed products such as Inflation Indexed Bonds based on the Wholesale Price Index (WPI) and Inflation Indexed National Saving Securities-Cumulative for retail investors based on Consumer Price Index (CPI) inflation. The Government was expecting to mop up around Rs 20,000 crore from these two instruments. Meanwhile, the total mobilisation through both the instruments was around Rs 6,000 crore out of which approximately Rs 5,900 crore was garnered from inflation indexed bonds based on WPI and Rs 100 crore from the securities based on CPI inflation. Money collected through such instruments will be part of the Government’s borrowings plan for Rs 3.68-lakh crore between April and October’ 2014.
Recently, the Reserve Bank of India (RBI) has doubled the maximum limit for investment in inflation-indexed bonds to Rs 10 lakh per annum for individuals. Further, the investment limit for institutions like Hindu undivided family (HUF), Charitable Trusts, Education Endowments and similar institutions that are not profit-seeking in nature has been increased from Rs 5 lakh to Rs 25 lakh per annum.
The absence of tax benefits in the scheme has detracted individuals as there is no benefit available either on the principal investment or interest paid. Further, the declining retail inflation could also be reason for poor retail investors’ response. The CPI inflation in February came down to an over-two-year low of 8.1 percent from 8.79 percent in January.
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