Introduction
Inflation Indexed National Saving Securities – Cumulative, which are popularly called IINSS-C are investment schemes introduced by the Reserve Bank of India (RBI) in association with the Government of India.
IINSS-C is a type of Debt Investment Instrument, whose underlying is the rate of inflation of the country. This investment opportunity provide the investors with an hedge on the increase inflation rates in the country.
IINSS-C was first introduced on 25th December 2013. The sole agenda was to create tools to shield savings from inflation, particularly those of the lower and middle classes.
Also Read: How Does Inflation Affect The Mind Set Of Long-Term Investor
Interest Rate Calculation
The rate of return for IINSS-C is derived as follows:
- Fixed: 1.5% will be a fixed rate of return, that will be the base return
- Variable: Inflation Rate
The inflation is calculated based on the increase in Consumer Price Index (CPI) in the particular year (Base CPI is considered as 100 for the year 2010).
Consider for example, the inflation during a year is 5.5%, thus the rate of interest on the IINSS-C will be 7% (5.5% + 1.5%).
In case of negative inflation (deflation), the negative value will not be considered and the investors will receive a base 1.5% as a rate of return for the particular year.
It is to be noted that the rate of interest is made semi annually.
Thus, the fixed rate of return will be 0.75% (half of 1.5%), plus the rate of return due to inflation I the 6 months period.
Understanding with a Case Study
Consider an investor who invests Rs. 5000/- in 2013. The following will be the growth of investment over time (Investment is compounded semi annually).
| Date | CPI | Interest | Investment |
|---|---|---|---|
| Dec-13 | 150 | 5000 | |
| Jun-14 | 160 | 7.4 | 5371 |
| Dec-14 | 166 | 4.5 | 5613 |
| Jun-15 | 175 | 6.2 | 5959 |
| Dec-15 | 185 | 6.5 | 6344 |
| Jun-16 | 190 | 3.5 | 6563 |
| Dec-16 | 200 | 6 | 6958 |
| Jun-17 | 210 | 5.8 | 7358 |
| Dec-17 | 218 | 4.6 | 7693 |
| Jun-18 | 228 | 5.3 | 8104 |
| Dec-18 | 235 | 3.8 | 8414 |
| Jun-19 | 246 | 5.4 | 8870 |
| Dec-19 | 255 | 4.4 | 9262 |
| Jun-20 | 265 | 4.7 | 9694 |
| Dec-20 | 280 | 6.4 | 10316 |
| Jun-21 | 290 | 4.3 | 10761 |
| Dec-21 | 305 | 5.9 | 11399 |
| Jun-22 | 316 | 4.4 | 11895 |
| Dec-22 | 330 | 5.2 | 12512 |
| Jun-23 | 340 | 3.8 | 12985 |
Thus, the total return will be Rs. 12,985/- (compounded semi annually).
From the above table we can also infer that, the maximum rate of return was 7.4% in the year 2014 and 3.5% in the year 2016
The aggregate average return on investment was 4.4% per year compounded semi annually.
How to invest in Inflation Indexed National Saving Securities
As per the rules prescribed by the Reserve Bank of India (RBI), IINSS-C can only be invested with the help of Banks as a mediator and cannot be purchased, transferred or sold online.
Examples of some Authorised Banks:
- HDFC Bank
- Axis Bank
- SBI Bank
Firstly, the investors need to fill in the form and submit the necessary documents (as provided in the link) to the bank on the date of issue.
Click on the link below to download the form:
One can also invest through Stock Holding Corporation of India (SHCIL).
Please note that, the minimum investment limit is capped at Rs. 5,000/- and the maximum limit is capped to Rs. 10 Lakhs for individual investors and can go up to Rs. 25 Lakhs for institution investors.
The process of investment is simple and straight forward. Once the payment is made by the investor, the bank will register the investors in RBI’s E-Kuber portal and provide with a Certificate of Holding.
The new issues are release / made available on 25th of June and December of every year.
Thus, they act as close-ended debt instruments, where the investment opportunities are made available on for a particular interval over the year.
Form of Security Holding
IINSS-C are issued in the form of Bonds Ledger Account (BLA) which will be issued and held with RBI. Thus, RBI will act as Central Depository.
Thus, a Certificate of Holding will be issued to the holder of securities in BLA which will act as a proof of purchase of securities.
Therefore, the RBI will open a BLA for each investor and issue a “Certificate of Holding” specifying the number of units of IINSS-C held by the investor after receiving the money and registering the investor on RBI’s CBS (E-Kuber) Platform.
Redemption of the Scheme
There will be no interim interest payouts in this scheme of investment.
However, the interest will be re-invested and the compounded gains will be released at the time of redemption / maturity.
In case of redemption on maturity, the investor will be advised one month before maturity regarding the ensuing maturity of the bond advising them to provide a Letter of Acquaintance, confirming the NEFT account details, etc. for the transfer of funds.
Condition of Pre-Mature Redemption
Investors can apply to the concerned bank a few days prior to the coupon day in the event of an early redemption before the maturity date.
While, for investors above 65 years, the premature redemption is allowed after 1 year. For others, it is allowed after 3 years.
Also it is important to note that, investors shall be liable for a penalty equal to half of the latest paying coupon.
For instance, there would be a penalty of Rs. 500 if the latest payable coupon was for Rs. 1,000.
Conclusion
The conclusion can be inferred using the following summary table:
| Description | Details |
|---|---|
| Rate of Return | 1. Fixed: 1.5% 2. Variable: Based on CPI |
| Procedure to invest | Approach Banks with form and other documents |
| Investment Limit | Minimum: Rs. 5,000/- Maximum: Rs. 10 Lakhs for individuals & Rs. 25 Lakhs for institutions |
| Form of Security | Certificate of Holding which will be issued in Bold Ledger Account |
| Central Depository | Reserve Bank of India |
| Dates of Issue | 25th of June and December of every year |
| Redemption | Released on maturity (Principal + Interest) |
| Lock In Period | 3 years |
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