A Study of “Inflation Indexed Bonds ” in Indian Debt Market

This research attempts to explain India as an upcoming Debt Market with the introduction of the new instruments like “Inflation Indexed Bonds ” (both for the retail and the institutional buyers) followed by the explanation about both the technical and the conceptual aspect of the “Inflation Indexed Bonds (IIB) ” and their applicability in Indian Debt Market. After discussing about the literature on IIB’s, in the last section, we have seen the yield of a hypothetical “Inflation Indexed Bond ” higher as compared to “Normal bond ” (non-inflation adjusted). We have also commented upon the real value of the returns keeping in mind the Investor’s perspective (purchasing power) and his behavior in buying and evaluating such instruments. Lastly, we have compared both the bonds in the rising inflation scenario. We have analyzed that for an Inflation Indexed Bond, bond value increases with increase in the Inflation and vice-versa but for a Normal Bond, it remains unaffected by the rising Inflation levels (keeping interest/reinvestment rate as constant for both the bonds)