Last week we have discussed on "The CRASH of RUPEE” In this issue, we would be discussing on “Inflation Indexed Bonds Guard Against Inflation???

1. KNOWLEDGE PLUS
For Wealth …..
VALUE PLUS- The Family Office
From
Research Desk

2. Last week at the Financial Markets!!!
• SENSEX fell by 331.07 points (1.68%) and closed to 19429.23 at
end of the week
• (FIIs) were net buyers in equity segment leading to net inflow of
Rs. 117.70 Crore
Knowledge Plus for Wealth +
News Impact
• Government has raised the Gold
import duty from 6% to 8%
• It increases price of gold which may
result into reduction in demand.
• Gold smuggling may increase.
• Rupee weaken near 1 year low of
USD/INR 57.07
• Imports will get costlier, current account
deficit problem will aggravate.

3. Last week at the Financial Markets!!!
Knowledge Plus for Wealth +
Price Performance of Different Asset Class
Markets across the globe
are watchful on Fed’s
possible action on
reduction of stimulus
measures in U.S.

4. Next Week in the Financial Markets...?
Knowledge Plus for Wealth +
• Factory output data will be released on June 12.
• WPI data for the month of will be released on June 14, 2013.

5. Hot Topic of the Week
Inflation Indexed Bonds
Guard Against Inflation???
Knowledge Plus for Wealth +

6. Inflation Indexed Bonds (IIBs)
• An IIB is a security that assures a return higher than inflation
(WPI).
• Currently to hedge inflation, institutions are using gold as an
asset class.
• IIBs are an another asset class to protect the capital against
inflation.
Knowledge Plus for Wealth +

7. How IIBs works ?
• Assume IIBs issued at a face value of Rs. 100/- with a real yield of 1.44%
paid annually.
• RBI referred to 4 months indexation lag, which means January WPI would
be used as a reference for bonds issued in June.
• If the inflation (WPI) stood at 6.62% in January, the interest for the month
of May (at the time of interest payment) would be Rs. 0.67/-
{100 X 8.06% }/12.
• Investors can claim capital indexation benefits but there will be no tax
exemptions.
Knowledge Plus for Wealth +
Inflation 6.62 %
Add : Real Yield 1.44 %
Coupon Rate 8.06 %

8. Purpose of issuing Inflation
Indexed Bonds
• To provide an instrument to investors that offers hedging against
inflation risk.
• To enhance credibility of anti-inflationary policies.
• To provide an estimate of inflation expectations.
• To create an additional asset class for fund deployment and
there by facilitate widening of Government Securities market.
Knowledge Plus for Wealth +
Source :

9. Limitations
Knowledge Plus for Wealth +
As IIBs are linked with
WPI, it won’t provide
complete protection
against CPI

10. Conclusion
• Though investors gets an another asset class for hedging against
inflation risk, it may not be beneficial for retail investors as it
provides protection only against WPI whereas it is the CPI that is
affecting household savings.
Knowledge Plus for Wealth +
Source :

11. Knowledge Plus for Wealth +
Research Desk
@
VALUE PLUS - The Family Office
Office: (0265 -2324600,6629800)
Email: crm@valueplusinv.com
Website: www.valueplusinv.com