New Delhi, Apr 5: Innovation seems to be the flavour of the month at IDBI and ICICI. Both these institutions are planning to indulge investors with a variety of bond options in fiscal 1999-2000. In their umbrella prospectus submitted to the Securities & Exchange Board of India, IDBI and ICICI have lined up as many as eleven new instruments apart from the usual flavour of plain vanilla bonds. IDBI is the more adventurous of the two with eight new instruments out of a total of 14 bonds. On IDBI's platter are names like Gold Bond, Insurance Bond, Gift Bond, Capital Appreciation Bond, Senior Citizen Bond, Upfront Interest Bond, etc. ICICI's new instruments include Monthly Pension Bond, Twin Benefit Bond and Index Bond. Last year's innovations like the Retirement Bond and Education Bond have been retained this time around, too.
The Gold Bond is probably inspired by the Finance Minister's Gold Deposit Scheme which found a mention in the Union Budget. Although the details of the scheme are not yet available, eachbond's face value will be equivalent to a certain weight in gold; the interest payment will be in gold. For those keen on a hedging instrument, the Gold Bond is your answer. Gift Bond has two tradeable gift warrants with every bond, while in the Capital Appreciation Bond an investor receives a premium on redemption apart from the periodic interest. Under the Insurance ond, an investor will receive an accident/life insurance cover with every bond. The Floating Rate Bond is linked to the bank rate/treasury bill/SBI deposit rate.
The Senior Citizen Bond and the Retirement Bond are targeted at those on the threshold of retirement. The Multi-Option Bond gives investors the option of choosing the interest payment at his convenience, while the Upfront Interest Bond gives a person the wait-period he desires. ICICI's Index Bond is not a new innovation; it was unsuccessfully tried two years ago. There was a major hue-and-cry about the inherent risk of the instrument by virtue of it being linked to the Sensex swings.However, ICICI is keen to test the instrument once again. The Monthly Pension Bond is ICICI's answer to IDBI's hugely successful Retirement Bond in its last Flexibond tranche.
With the investor appetite for the plain vanilla bonds waning thanks to the frequency of bond issues, variety is now clearly the spice of life. However, with a maze of bonds veing for a slice of the fixed-investment pie, it now remains to be seen how many actually see the light of the day. Last year, too, ICICI and IDBI had in their umbrella prospectus offered new instruments which finally did not materialise. Sources say the marketing effort required to hard-sell any new instrument is immense and that is one reason why these FIs have been reluctant to try new products. ``Every time a new instrument hits the market, there is so much hue-and-cry that it makes the whole exercise futile,'' said a Delhi-based broker. However, the response to IDBI's Retirement Bond should put to rest doubts over the feasibility of these newinstruments.
ICICI's umbrella prospectus is for Rs 4000 crore with a green shoe option of another Rs 4000 crore. IDBI's umbrella prospectus is for Rs 3000 crore with a green shoe option of another Rs 3000 crore. Although there is no mention of the interest rate on any bond, both the institutions have indicated a fall in yields compared with last year's offering. With UTI's latest monthly income plan offering 10.75 per cent, IDBI and ICICI are likely to peg their rates around 12-13 per cent provided another round of interest rate cut does not happen.
Copyright © 1999 Indian Express Newspapers (Bombay) Ltd.