CRISIL IIGS Index, India’s first inflation index will serve both as a benchmark as well as index.
Inflation Indexed Government Securities Index (IIGS) is India’s first inflation indexed government securities index developed by CRISIL.
Purpose
CRISIL IIGS tracks the performance of inflation indexed bonds which invest in a portfolio of inflation-linked government securities. It is a total return index (TRI) which seeks to capture returns of inflation-linked securities due to coupon accruals and price change, both adjusted for inflation.
What is total return index?
It is an index which includes dividend while calculating the performance of a group of stocks. TRI is different from price index (PI) as PI considers only capital gains arising out of price movements, completely excluding the dividend component.
What are Inflation Indexed Bonds?
Inflation Indexed Bonds (IIB) are issued by the RBI that have coupon and principal linked to inflation. These bonds have tenure of 10 years and are linked to wholesale price inflation (WPI). IIBs provide a hedge against inflation. These bonds usually give returns that are more than the rate of inflation, thereby protecting the investors against price rise.
Which mutual funds are currently investing in IIB?
Currently DWS and HDFC have launched their inflation index bond funds while SBI and Axis have filed draft offer documents with SEBI to launch inflation-indexed bond schemes. Sandeep Sabharwal, Senior Director, Capital Market, said “Since its launch in 2013, the inflation-linked government security has gained some popularity in the mutual funds space. Two inflation-linked funds have already been launched and a few are in the pipeline. We believe the CRISIL IIGS Index will meet the need for an appropriate benchmark index for these funds.”
Impact
Currently, there is only one security issued in June 2013, the 1.44% Inflation Indexed Government Stock 2023 which is linked to Wholesale Price Index.
The IIGS Index will serve as a benchmark for mutual funds that have launched schemes based on inflation-indexed bonds. CRISIL believes that the index will provide an appropriate and easily accessible benchmark to measure and analyze the performance of such securities.