Bonds, Currencies & Commodities
Inflation Index Bonds: Issues and challenges

For small investors, Inflation index bonds can be beneficial. Though the real return from these bonds will be close to being a very nominal amount, the wealth erosion won’t happen

This comes in the background of increasing gold import in the country which has added to the increasing current account deficit. To wean investors away from buying gold, Reserve Bank of India (RBI) has decided to introduce inflation-indexed bonds (IIBs) in a new avatar  Whether gold import will be reduced as a result of this measure is debatable, the basic idea of these bonds is to give subscriber of these bonds protection from inflation.  It is pertinent to note that these bonds were introduced earlier in India as well but somehow could not work in terms of attracting attention of investors. In 1997, RBI has introduced capital index bonds which got matured in 2002.

Fixed Income: Risks with NBFCs

Inflation Indexed Bond: How it works internationally

What is inflation indexed bond and how it works? Many countries in the world have issued it and the idea of inflation indexed bond has worked successfully in these countries. For instance, in USA, this type of bond is called as,’ Treasury Inflation Protection Security’ or TIPS. Treasury Inflation-Protected Securities, or TIPS, provide protection against inflation. The principal of TIPS increases with inflation and it decreases with deflation, as measured by the Consumer Price Index. When TIPS matures, an investor is paid the adjusted principal or original principal, whichever is greater. In UK, such bonds are called as,’Index Linked Gilts’. Index-linked gilts differ from conventional gilts in that both the semi-annual coupon payments and the principal payment are adjusted in line with movements in the General Index of Retail Prices in the UK (also known as the RPI). Australia has issued inflation index bonds more on the pattern of USA. As per Australian Office of Financial Management,’ Treasury Indexed Bonds will be issued only as capital-indexed bonds with the capital value of the investment being adjusted by the rate of inflation. Interest will be paid quarterly, at a fixed rate, on the adjusted capital value. At maturity, investors will receive the inflation-adjusted capital value of the security - the value as adjusted for inflation over the life of the bond.

Buying bonds from secondary market: Go through the checklist

Challenges before RBI

Issuance of inflation indexed bonds in India is full of challenges for RBI. The first and the most important challenge come from the fact that we have two indices which are used for calculation of inflation. One is Wholesale Price Index (WPI) and the second is Consumer Price Index (CPI). Which one should RBI use for benchmarking inflation indexed bonds? This is a dilemma which many governments internationally have faced. The next challenge would be identifying whether only principal should be adjusted to inflation or even coupon should be adjusted. There are both models available in the world. Adjusting both principal and coupon is a very attractive proposition for investors but very costly concept for a high inflation country like India. Additionally another aspect that needs to be considered is the taxability of these bonds. Any taxation of these bonds will reduce real returns of investors and hence these bonds should be logically tax free.

Benefits for Investors

For investors it can open a new avenue of investments. There are very few risk free investment options in India which have the potential to match inflation. As a result of this, investors have to venture into the world of uncertainties. For the small investors, this type of bond can be beneficial. Though the real return from these bonds will be close to being a very nominal amount, the wealth erosion won’t happen.




4 years ago

Good opportunity for people. If they put money in such bonds, their capital is protected in real terms (i.e. against too high & killing inflation) besides giving some return.

Suzlon, Tanti, four company executives pay Rs12 lakh to settle charges with SEBI

SEBI alleged that Suzlon had amended its code of internal procedures and conduct for prevention of insider trading on 4 February 2011, after a delay of more than two years


Mumbai: Market regulator Securities and Exchange Board of India (SEBI) has disposed off proceedings against wind turbine maker Suzlon Energy, its chairman Tulsi Tanti and four other executives after they together paid Rs12 lakh to settle charges related to alleged delay in amending insider trading norms, reports PTI.


Besides Tulsi R Tanti—founder chairman of Suzlon Energy—others who have entered into a consent order with SEBI are Girish R Tanti, V Raghuraman, Ashish Dhawan and Hemal A Kanuga.


Girish Tanti and Raghuraman are currently on the board of Suzlon.


According to SEBI, Ashish Dhawan was a director with the company while Kanuga was a compliance officer.


All the six entities, including Suzlon, paid Rs2 lakh each to settle the charges with SEBI.


In six similarly-worded orders issued yesterday, SEBI said that it is disposing off “the aforesaid adjudication proceedings,” against the six entities.


As per norms regarding insider trading, all listed firms were required to frame a code of internal procedures, among others. This regulation was notified by SEBI in 2008.


However, the regulator alleged that Suzlon had amended its code of internal procedures and conduct for prevention of insider trading on 4 February 2011, after a delay of more than two years.


In this regard, adjudication proceedings were initiated against the six entities.


While the proceedings were in progress, the company and its officials proposed a settlement under SEBI’s consent order mechanism, in August last year.


In October 2012, the entities revised their consent terms and offered to pay Rs2 lakh each to settle the case.


Thereafter, SEBI’s High Powered Advisory Committee on Consent (HPAC) after deliberations, recommended the case for settlement on the payment of the amount.


This was also approved by a panel of SEBI’s whole-time members, following which the company and its officials remitted the amount earlier this month.


SEBI noted that enforcement actions, including commencing or reopening of the proceedings, could be initiated if any representation made by the entities is found to be untrue.



uttamkumar dubey

4 years ago

When can we expect Suzlon getting overall positive ?
What is the problem that since 2008 , its not able to recover to any extent?

And in what scopes its trading in NSE/BSE, shouldnt it be banned from the exchanges? Anything SEBI can do to safeguard the company or the ppl/investors?

thnks!! uttam

SEBI bars Angel Broking from taking new clients for two weeks

While barring Angel Broking, one of the biggest brokerages in the country, SEBI said the occurrence of synchronized deals in a circular manner persistently cannot be said to be a co-incidence as the shares were being rotated intra-day within a closed group and there was no change in the beneficial ownership in the shares of Sun Infoway

Market regulator Securities and Exchange Board of India (SEBI) has barred Angel Broking from accepting new assignments or any new clients for two weeks for violating code of conduct for stock brokers.


“The noticee (Angel Broking), by indulging in the trading pattern discussed above has failed to perform its duties as specified in the code of conduct for stock brokers in the Broker Regulations. In view of the above, I find that the noticee has violated Clauses A(2) and A(3) of the Code of Conduct prescribed for Stock Brokers in Schedule II under Regulation 7 of Broker Regulations,” said Prashant Saran, whole-time member of SEBI in an order.

The market regulator has also prohibited Allwin Securities and Bharti Thakkar India Securities from taking up any new assignment for two weeks. It also suspended erstwhile N C Jain (presently known as NCJ Shares and Stockbrokers Ltd) for a period of one week.

The order would come into force after 21 days.

The matter relates with trading of Sun Infoway (SIL) between 5 February and 2 May 2001. SEBI’s investigations prima facie revealed that circular/reversal traders were executed by certain brokers forming part of few groups in the scrip of SIL. Such circular/reversal trades created artificial volume to the tune of 5.43 lakh shares (gross) in 37 days out of 50 trading days. It was found that the circular trading in the scrip had generated 26% to 97% of the daily volumes on the days when such trading was observed. The circular/reversal trades had resulted into an increase in the price of the scrip in the beginning of the investigation period till 2 March 2001 and the price of the scrip had stayed in the range of Rs342 to Rs296 (opening price). Thereafter, the trading of these entities in the scrip reduced drastically, the volume of trades in the scrip became negligible and the price of the scrip also started declining. The “last traded price” (LTP) analysis for the entire period shows that the price of the scrip varied in the range from -14% to 11.54%, SEBI said.


SEBI said, during the investigation period, three different groups were found trading in the scrip of SIL in a circular manner. Out of these, the group consisting of eight brokers/sub-brokers, NC Jain, Opulant Stock Broking, Bharti Thakkar India Securities Pvt Ltd, ISJ Securities/Vintel Securities, Sripal Jain, Joindre Capital Service/Alwin Securities and Reneissance Securities/Mellennium Securities and their clients including Angel Broking were found trading amongst themselves in circular manner, which led to the creation of artificial volumes in the market. The total volume generated by this group by way of circular trades was 3.42 lakh shares (gross) or about 37.52% of the total quantity traded during the period of investigation.


In his order, Mr Saran said, “Considering the number of shares involved in the present proceedings executed by the noticee for its client and also the pattern of trading, I am of the view that these numbers were good enough for the noticee to raise some suspicion on the trading pattern of its clients. Therefore, it can be concluded that the noticee had aided and abetted its client in the creation of artificial volume in the scrip of SIL in violation of the provisions of Regulation 4(b) and (d) of the PFUTP Regulations.”


“I further note that if stock brokers are not careful and allow their systems to be misused, manipulations cannot be eliminated from the market. The circular/reversal trades are contrary to normal trading practices and create false market. The noticee (Angel Broking) has dealt in the scrip of SIL in a manner detrimental to the interest of investors. Such acts threaten the market integrity and orderly development of the market and call for regulatory intervention to protect the interest of investors as the same pose serious threat to the price discovery mechanism of the stock exchange and the safety of the securities market mechanism,” Mr Saran said.


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