*Assistant Professor, Bhagwan Parshuram Institute of Technology, GGSIPU
**Assistant Professor, Vivekananda Institute of Professional Studies, GGSIPU
***Assistant Professor, Bharati College, University of Delhi, New Delhi, India
This research paper attempts to explain India as an upcoming debt market with the introduction of new instrument i.e. “Inflation Indexed Bonds” (both for the retail investors and for the institutional investors) and also showing, by virtue of this product not only the principle but also the interest on bonds will have protection from Inflation, followed by the explanation about the conceptual aspects of Inflation Indexed Bonds (IIBs) and their applicability in the Indian debt market.
After going through many literatures and reviewing past studies on IIBs, it has been analyzed that the return on a hypothetical “Inflation Indexed Bonds” is higher as compared to “Nominal Bonds” (non-inflation adjusted).
This research paper also commented upon the real value of the returns keeping in mind the investors perspective (purchasing power of retail investors) and their behavior in buying and evaluating such instruments. This paper compares both the Inflation Indexed Bonds and Normal Bonds in the rising inflation scenario. It has been analyzed that for Inflation Indexed Bonds value increases with increase in the inflation but it is not true for Normal Bonds, it remains unaffected by the rising inflation level (keeping interest and reinvestment rate as constant for both the bonds).
At the end, paper concludes by explaining few observations and findings based on the analysis of Inflation Indexed Bonds as a new instrument/product for the Indian under-developed debt market. This research paper also analyzed the need, advantages, disadvantages and structure of Inflation Indexed Bonds in India.
Inflation, Normal Bonds, Inflation Indexed Bonds, CPI, WPI, Purchasing Power
