Inflation – Profit Bonds:

In order to overcome the inflationary effects of yield of  bonds and securities especially to protect the small investors, inflation - profit bonds have been suggested. These are also known as stable purchasing or constant power purchasing bonds. The significance of these bonds is that the redemption value would vary according to the cost of living index which protects the small investors against any loss of purchasing power from inflation as well as depriving of a gain if prices should fall. Countries like Austria, France, Finland and Israel besides U.S.A used this method either in private or public lending operations. It was supported on the ground that it would defeat inflation and provides an 'escalator clause' to the small saver and investor. However, this innovative method has been criticized on the ground that it would generate pressure for adopting such an escalator clause in other sectors also.