Inflation-Indexed Bonds (IIBs) Vs Capital Indexed Bonds (CIB

Jun 12, 2024

Inflation-Indexed Bonds (IIBs) Vs Capital Indexed Bonds (CIBs)

Feature	Inflation-Indexed Bonds (IIBs)	Capital Indexed Bonds (CIBs)
Example Principal	₹10,000	₹10,000
Annual Interest Rate	5%	5%
Inflation Rate	3%	3%
Adjusted Principal	₹10,300 (₹10,000 1.03)*	₹10,300 (₹10,000 1.03)*
Interest Payment	₹515 (5% of ₹10,300)	₹500 (5% of ₹10,000)
Principal & Interest Both Adjusted?	Yes	No
Indexed To	A Price Index	A Price Index
Suitable For	Complete inflation protection for principal and interest	Inflation protection for principal only

► In an Inflation-Indexed Bond (IIB), both the principal amount and interest are adjusted according to inflation. So, in our example, the interest is 5% of the adjusted principal of ₹10,300, which results in ₹515.

► In a Capital Indexed Bond (CIB), only the principal is adjusted for inflation. The interest remains 5% of the original principal of ₹10,000, resulting in ₹500.

Feature	Inflation-Indexed Bonds (IIBs)	Capital Indexed Bonds (CIBs)
Protection	Principal + Interest	Only Principal
Interest Payment	₹515 (5% of ₹10,300 )	₹500 (5% of ₹10,000)
Adjustment	Both Principal and Interest	Only Principal