Although the Reserve Bank has not released any official sales figures, it has given a long extension to the period for which these bonds were to open. From an original eight days (December 23 to December 31), the issue has now been extended to to three months and eight days. The bonds will now be available till March 31st, 2014.
Rumour has it that investors' response to the bonds has been negligible and the sales were close to zero. If this is indeed true then instead of just extending the date, it might have been better for the Reserve Bank to re-examine the product characteristics and fix the flaws.
According to feedback that Value Research has got from savers, there are a handful of problems with the bond. Firstly, retail fixed-income investors are generally income-oriented and often prefer the periodic income. These bonds have only a cumulative option. Moreover, the lock-in period of ten years is very long. During this time, inflation might fall and investors would get a lower return. The long lock-in heightens this fear.
Also, the tax free infrastructure bonds that are available nowadays are a more attractive option on a tax-adjusted basis after taking into account all the above problems.
Finally, these bonds are available for sale only through banks. Banks' enthusiasm is driven more by the commission earned and the inflation-indexed bonds fetch less commission compared to other products that banks can sell.
Ask Value Research 
New episodes every Friday 
New Process Alert 
Seems like you've uploaded a wrong QR code. Please upload the QR code downloaded from MF Central platform.
