The core size of the issue -- the first public issue to be launched by IDBI in fiscal 1999 -- is Rs 750 crore. This is also the first tranche of IDBI's `umbrella issue' of Rs 5,000 crore for which it has already received Sebi clearance.

The four instruments being offered are the regular income bond, growing interest bond, deep discount bond and education bond. The issue will close on October 17.

IDBI chairman and managing director GP Gupta said the institution plans to raise Rs 5,000 crore through the public issue in three tranches during the current financial year. "IDBI will launch the second tranche in December and the third in March to raise the remaining amount," he said.

The financial institution is not apprehensive about the rising cost offunds when it enters the market later this year with the second and third tranches of borrowing programmes, Gupta said. "The interest rates would remain stable. There is a huge inflow of funds on account of Resurgent India Bonds and I don't think the interest rates will go up," he added.

The financial institution is also raising additional funds through a private placement that will be outside the purview of the Rs 5,000 crore to be raised by the flexibond IV issue.

IDBI's regular income bond offers a return of 14 per cent annualised for a period of seven years. The investor has the option to receive interest payments either bi-annually or annually. The bond can also be encashed at the end of the fifth year (in which case the annualised return will be 13.75 per cent).

In the case of the education bond, the investor can opt either to receive five equal annuities from the end of the waiting period of five, seven or 10 years or a lumpsum amount at the end of fifth, seventh or the tenth year.

The growinginterest bond has a built-in step-up interest rate structure which will rise from 11 per cent in the first year to 20 per cent in the seventh year. The deep discount bond will turn an investment of Rs 10,000 into Rs 1 lakh after 17 years and six months.

IDBI plans to raise Rs 17,000 crore during 1998-99 and "around 40 per cent of these funds would be met through the private placement route". The flexibonds IV issue has been notified as public securities by the government of India in terms of Section 20 (F) of the Indian Trust Act, 1882, and also by the governments of Rajasthan and Madhya Pradesh. The bonds have also been declared as public securities in terms of Section 88(2) of the major Port Trust Act.