RBI has now announced the subscription dates for the issue of IINSS-Cs as under:
Opening Date: Dec 23, 2013
Closing Date: Dec 31, 2013 [can be closed earlier too with prior notice.]
Sale / Distribution of IINSS-Cs would be done by RBI thru' SBI and its associate banks, Nationalised Banks, three Private Banks (ICICI, HDFC and Axis) and Stock Holding Corporation of India Ltd.
In addition, RBI has clarified certain issues.
- As mentioned earlier, interest rate would be equal to CPI Inflation Rate + 1.5%. However, if the inflation rate is negative, then the floor rate of interest would be 1.5%. In other words, there would be no negative interest.
- Interest will be accrued and compounded with the principal every 6 months; and paid along-with the principal on maturity
- IINSS-C would be issued in the form of Bond Ledger Account with RBI and a Certificate of Holding would be issued to the investor
- Joint holding is permitted
- Penalty for premature encashment is 50% of the last payable interest amount. So if the last interest payable is Rs.1000, Rs.500 would be charged as penalty.
- There is no TDS (unless otherwise notified by the Govt. of India)
However, as mentioned in earlier blog, two issues act as a dampener.
One, of course, being the volatility in the interest rates. Given that Indian investors have traditionally preferred guaranteed-return products, variable interest product may not find much favour with them. More so, with an investment cap of Rs.5 lakhs, the product is targeted to low-income group who may not have the risk appetite to see their returns fall. Competing products such as tax-free bonds, banks FDs etc. would most probably be their preferred investment.
Two, is the tax. Since interest income is fully taxable as per the person's income slab rate, IINSS-Cs would not be of much interest to the investors in higher income tax brackets. So IINSS-Cs would mainly find favour with the investors in nil / low income tax bracket (assuming, of course, that they are Ok with interest moving up and down every month). By the way, the tax would have to be paid every year on the interest accrued even though you would receive this interest only on maturity. So there could be a small cash-flow issue too.
