Municipal bonds in India: History, types and benefits for investors

Agency:News18Hindi

Last updated:January 26, 2025, 16:03 IST

Municipal bonds help local governments raise funds for infrastructure development. Investors get tax-free interest. The first bond in India was released by Bengaluru in 1997. Recently Prayagraj, Wa …Read more

3 districts of UP recently released municipal bonds.

New Delhi. The history of municipal bonds in India begins in 1997, when the Bangalore Municipal Corporation released the first municipal bond. Subsequently, cities like Ahmedabad and Nashik also moved in this direction. The main objective of municipal bonds is to raise financial resources for public projects to local governments. Recently, Prayagraj, Varanasi and Agra Municipal Corporations of Uttar Pradesh issued Rs 150 crore bonds.

Municipal bonds help local governments to raise the funds required for the development of infrastructure. They are used for projects like schools, hospitals, roads, and water supply. Investors receive regular income from these bonds in the form of interest (coupons), which are usually tax-free.

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Type
Municipal bonds in India are mainly divided into two categories:
General Obligation Bonds: These are issued by local governments and are paid from general tax revenue.
Revenue Bonds: These depend on the revenue generated from special projects.

Benefits for investors
Tax-free interest: Interest on most municipal bonds is free from tax.
Low risk: Their default risk is less than corporate bonds.
Transparency: They are rated by agencies like CRISIL, which helps investors to make decisions.

Challenges
However, municipal bonds provide many benefits, but there are some challenges
Investors confidence: Weak financial status of urban agencies and lack of management have affected the trust of investors.
Unavailability of authentic financial data: Investors’ interest has reduced due to doubt on local bodies.