With THE PUBLIC issue of several municipal bonds in the pipeline, retail investors can diversify their portfolio by adding exposure to urban infrastructure projects. Their repayment is linked to revenue streams such as property taxes, water charges, or project-linked cash flows.
Nashik Municipal Corporation has launched its maiden public issue of green municipal bonds to raise Rs 200 crore. The bond is offering a coupon of 8.05% per annum, payable half-yearly. The effective yield is 8.20% per annum with 3–10-years tenure. The bond, which is rated Provisional CRISIL AA+/Stable, aims to fund key water infrastructure projects. The minimum investment amount is Rs 10,000.
Aditi Mittal, co-founder, IndiaBonds, says municipal bonds occupy a unique space as they are infrastructure-backed, quasi-sovereign instruments that move independently of any market volatility. “That alone makes them a genuine portfolio diversifier. Safety-wise, India has seen zero municipal bond defaults to date,” she says.
How to invest
For primary issues, investors can apply through a SEBI-regulated broker and Online Bond Platform Provider (OBPP), complete KYC and pay online. The bonds are credited directly to the demat account. For the secondary market, listed municipal bonds are available on NSE and BSE. Modern issuances are structured with dedicated escrow mechanisms, ring-fencing specific revenue streams for investor repayment.
Ways to evaluate
Investors may stick to high rated bonds (AA- and above) that give meaningful protection. Revenue-generating projects such as water supply, toll-based infrastructure are generally more sustainable than purely administrative borrowings.
Nikhil Agarwal, founder and group CEO, Grip Invest, says investors must check stable revenue streams for the issuer along with property tax collection efficiency, operating surplus, and dependence on state grants. “Investors must validate the presence of escrow accounts, debt service reserve funds, or state guarantees,” he says.
Investors should track credit-rated municipalities, cities under AMRUT 2.0 reforms and urban infrastructure funding announcements. They must factor in secondary market liquidity and price movement as municipal bonds can trade with wider spreads.
Returns expectations
Municipal bond returns are best viewed as a spread over comparable G-Secs. Investors can expect 8-9% average coupon rates, with yields varying by credit rating and tenure. Compared to fixed deposits, these bonds offer higher nominal yields. There’s also the advantage to lock in rates across longer tenures—often up to 15 years—thereby reducing reinvestment risk if the cycle turns.