1.1 Introduction of Inflation Linked Bonds

This topic describes about the overview of inflation linked bonds.

Inflation-linked bonds (ILBs) are fixed-income securities designed to protect investors from inflation risk. Unlike traditional bonds that pay fixed interest and return a fixed principal, inflation-linked bonds adjust either their principal, interest payments, or both based on a recognized inflation index (such as the Consumer Price Index – CPI). The primary objective of these bonds is to preserve the real purchasing power of an investor’s money.

How Inflation Linked Bonds work:

• Bonds are tied to an official inflation index (example: CPI).
• Adjust the principal amount according to inflation.
• Pay interest based on the adjusted principal.
• Return the inflation-adjusted principal at maturity.

Types of Inflation Bonds:

• Capital-Indexed Bonds
  • Principal increases according to inflation
  • Interest paid on adjusted principal
  • Common in several countries (UK, Australia, India, etc.)
• Interest-Indexed Bonds
  • Interest payments adjust with inflation
  • Principal remains fixed
  • Less common than capital-indexed bonds

This topic contains the following sub-topics:

• Instrument Product Definition
  This topic provides systematic instructions to instrument product definition.
• Instrument Master
  This topic provides systematic instructions to instrument master.
• Instrument Corporate Action
  This topic provides systematic instructions to instrument corporate action.
• Credit Rating Maintenance
  This topic provides systematic instructions to credit rating maintenance.
• Redemption Blotter
  This topic provides systematic instructions to redemption blotter.
• Inflation Linked Bond Process
  This topic provides systematic instructions to inflation linked bond process.