To start with Inflation linked bonds, it is better to start with what bonds are actually. Bonds are fixed income securities or financial instrument by means of which an investor loans money to a particular entity in return for periodic interest payments or coupon and repayment of the amount loan at the end of the agreed maturity. The rate of interest that the investors demand is normally based on the risk profile of the borrower, inflation expectation over the maturity period and the real yield demanded. After adjusting for inflation, a real rate of return is what the investor expects out of it.