Deutsche AMC launches inflation-indexed bond fund

Deutsche AMC has launched inflation indexed fund called DWS Inflation Index bonds. The offer opened on the January 16 and will close on January 27 for all the retail investors. In an interview to CNBC-TV18, Suresh Soni, MD & CEO, Deutsche AMC India said inflation-indexed bonds are seeing good institutional participation contrary to popular belief. He said outstanding inflation-indexed bonds is at Rs 6500 crore. Below is a verbatim transcript of the interview Q: The government as well had introduced some inflation-indexed bonds. It was introduced a few months back and it didn’t garner that much response from the retail. How is DWS Inflation Index bond going to be any different?A: Inflation is actually a big worry for any investor across the globe. Your wealth really grows if you are able to outpace the inflation. Therefore, the inflation index bonds funds or the funds, which have returns linked to inflation, are quite popular with investors everywhere. In India, the Reserve Bank of India (RBI) is trying to bring inflation to the center of the policy-making and with that objective last year they introduced series of inflation-linked bonds. Overall, so far, the outstanding bonds and contrary to what you are saying, over a period of time inflation index bond fund market in India has grown. Currently, the outstanding issues are about Rs 6500 crore and it is well participated by the institutions. We are looking to essentially create a fund, which invests into these products and therefore in the end investors are able to get returns, which are meaningfully above inflation.

Q: What is it benched marked on — Consumer Price Index (CPI) or Wholesale Price Index (WPI)?A: These are essentially the bonds, which have returns linked to the WPI. Over the last 10 years, the WPI in India has averaged about 6.7 percent and normal investors have really had difficulties at times to beat that numbers by conventional fixed deposits or anything else. Now, there is an opportunity to invest into something which offers substantially higher returns over inflation. Currently, the bonds that we are looking at are yielding about 3.5-3.6 percent over inflation. So, as such, this is ideal for investors who are saying: “Look, I want my investments to grow over a period of time irrespective of inflation. I want to make an asset allocation into an asset class which protects me from inflation.”Q: Would it be prudent to now look at CPI as your benchmark index considering that we also have the Urjit Patel Committee recommendations, which also came out and we have had the RBI governor emphasizing CPI inflation as more of an indicator as opposed to WPI?A: In fact, what RBI has done is they have come out with CPI linked bonds essentially for retail market thus far so currently what you have CPI linked bonds are available for very small denomination of up to Rs 5 lakh in a certificate forms. Whereas for the institutional segment of the market or for the largest segment of the market they have come out with WPI linked bonds at the moment. But having said that we would be open to looking at more instruments as and when they get introduced from RBI. Q: Is there any kind of a lock-in period for retail investors that you have to invest for one year or anything like that?A: It is an open ended fund so investors can come in with any time horizon they have in mind but what we have done is we essentially would like people to consider it more as an asset allocation over a medium term investment product. So there is a small exit load which is there in the fund. If investors redeem before one year I would say ideal investment horizon for investors should be upwards of about one-two years and beyond. And it should be a part of their core portfolio allocation in order to mitigate the negative effects on purchasing power of inflation.