With reference to the Indian economy, what are the advantages of "Inflation-Indexed Bonds (IIBs)"? 1.…
With reference to the Indian economy, what are the advantages of "Inflation-Indexed Bonds (IIBs)"? 1. Government can reduce the coupon rates on its borrowing by way of IIBs. 2. IIBs provide protection to the investors from uncertainty regarding inflation. 3. The interest received as well as capital gains on IIBs are not taxable. Which of the statements given above are correct?
1 and 2 only
2 and 3 only
1 and 3 only
1, 2 and 3
Solution
IIBs allow the government to pay lower coupon rates as inflation protection is built in (1 correct). IIBs protect investors from inflation uncertainty by indexing principal/coupons to inflation (2 correct). Interest and capital gains on IIBs are taxable (3 incorrect).