14.28 ndian onom
introduce inflation-indexed bonds (IIBs)—it was
proposed by the Union Budget 2013–14. The
golD exchange traDeD funDS
government hopes this will help increase financial Gold Exchange Traded Funds (ETFs) are open-
savings instead of buying gold. In the recent years, ended mutual fund schemes that closely track the
the rate of return on debt investments has often price of physical gold. Each unit represents one
been below inflation, which effectively means that gram of gold having 0.995 purity, and the ETF
inflation was eroding savings. Inflation indexed is listed on stock exchanges. The net asset value
bonds provide returns that are always in excess of of each unit is calculated based on the prices
inflation, ensuring that price rise does not erode of physical gold prevailing on that day and is
the value of savings. designed to provide returns that would closely
In 2013–14, RBI launched two such bonds track the returns from physical gold.
—the first one in June 2013 linked with the WPI
which had a very weak retail response and second e-golD
one in December 2013 linked with CPI. The e-Gold is another purchase option, involving
latter one is called as Inflation Indexed National investments in units traded on the National
Savings Securities-Cumulative (IINSS-C) with Stock Exchange (NSEL). Here, the investor is
a 10 years tenure. These are internationally known required to have a demat account with an affiliate
as inflation-linked securities or simply linkers. of NSEL. e-Gold’s brokerage and transaction
Interest rate on these securities would be linked to charges are lower than gold ETFs as there are no
final combined consumer price index [CPI (Base: fund management charges. One can take delivery
2010=100)]. Interest rate would comprise two of gold or sell it in the exchange.
parts: fixed rate (1.5 per cent) and inflation rate,
But there is also a negative point here from
based on three-month lag to CPI—thus, if a bond
the tax angle—under e-Gold, one has to hold the
is being valued in December, the reference rate
yellow metal for 36 months to enjoy long-term
will be CPI of September. The new offering should
capital gain benefits, and this is taxed at 20 per
attract higher attention from savers, especially due
cent. For ETFs (Exchange Traded Funds) and
to its link to CPI instead of wholesale price index
gold funds, the holding period to be classified
(WPI), which is a less accurate gauge of inflation.
as long-term is only one year. After a year, ETF
CPI is considered a more accurate gauge of the
and gold funds will suffer 10 per cent tax without
impact of inflation on consumers because it takes
indexation and 20 per cent after indexation. For
into account increases in the cost of education,
a small investor, gold ETF would appear to be
food, transportation, housing and medical care; in
the best option, as it meets his needs without
WPI, the emphasis is on measuring the prices of
difficulties in terms of creating a separate demat
traded goods and services.
account, tax implications and wealth tax.
It was in 1997 that the IIBs were issued for the
first time in India—named as the Capital Indexed
cPSe etf
Bonds (CIBs). But there remains a difference
between these two bonds. While the CIBs The Central Public Sector Enterprises Exchange
provided inflation protection only to principal the Traded Fund (CPSE ETF) comprising the
new product IIBs provides inflation protection shares of 10 blue chip PSUs was listed on the
to both the components—principal and interest BSE and NSE platforms on 41 April, 2014. The
payments. Government of India expected to raise a corpus