Inflation Indexed National Savings Securities Cumulative (IINSS-C)

All of us have probably woken up to similar ads in our daily newspapers:

Ever since  I woke up this morning I have been asked for my gyan on the matter at least a dozen times,so here it is:

You can find all the details of the scheme here:Link and before you ask:There are no tax incentives to invest in these bonds.

As for my take on whether these are a good investment?My answer is that the answer is in these words in the notification:

final combined CPI will be used as reference CPI with a lag of three months (i.e. final combined CPI for September 2013 would be reference CPI for all days of December 2013). In case of change in the base year, the base splicing method will be used.

So if the government/RBI chooses to be honest,it might be a good deal.But if the combining(averaging?) and change in base year is used as a means to reduce interest rates,i.e. financial repression,this product might be no better and probably worse than many PO small savings schemes with pre-declared interest rates for the tenure.

So,wait and watch before consigning larger sums of money in this product.


The Gold Tax

wealthymatters.comThe following is the work of Ila Patnaik,a professor at the National Institute of Public Finance and Policy, Delhi.It was published in today’s Indian Express.

These days it is fashionable to talk about how gold is draining away India’s precious forex,how gold is the refuge of black money and how opting for gold is somewhat anti-social and unpatriotic.I decided to post this article here to remind people of how gold has long been a good friend of Indians of all classes and especially of Indian women.Gold has been around a lot longer than the subject of economics and economists.Economic fads come and go but gold worked for our grandparents and will not fail us.Keep your gold.Hold it as bullion or high karat jewellery and keep it safe and do not be tempted,pursuaded or coerced to exchanging it for paper of any sort whether currency notes or gold deposit/accumulation schemes,ETFs,certificates or dematerialized units.

Having said my piece I will now leave you to get on with reading the article below

With increased import duties on gold, we return to pre-liberalisation thinking

The inflation crisis of the last six years, coupled with a persistent lack of financial inclusion alongside a decade of high GDP growth, has given an upsurge in demand for gold. The increase in custom duty on gold proposed by the Union budget, and the reduction in the loan-to-value ratio of gold loans by the RBI, will hurt the poor. Read more of this post

Bill Gross and Frogs

wealthymatters.comUsing the metaphor of frogs Bill Gross explains Financial Repression and the ways of dealing with it.Of course he speaks of the situation in the US but there is no reason why investors in other countries whose governments are struggling with debt can’t learn from him.All said and done not for nothing he is the Bond King!

To quote him “Put a frog in a kettle of boiling water and he’ll jump out faster and further than any of those blue ribbon winners at the Calaveras County jumping frog contest.Put him in a pot at room temperature, however, slowly turn up the temperature to boiling, and you’ll have frog legs for dinner. This latter, more unfortunate toad temporarily adapted to his external environment, which seemed like a practical thing to do, until – well, until he reached 212 degrees at which point he was cooked.”Financial repression is similar to slowly turning up the heat on poor froggy/the bond holder/saver. And the boiling point is when the nominal returns on bonds turns negative. Read more of this post

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