Municipal Bonds

Municipal bonds are issued by urban local bodies to raise funds for public utility projects and infrastructure such as roads, water supply, and schools. The market is regulated by SEBI under the Issue and Listing of Municipal Debt Securities Regulations, 2015. These bonds offer investors regular interest payments and a relatively low-risk, tax-advantaged investment option.

High returns

Earn fixed returns of up to 13.25%

Low investment

Start investing with as little as ₹1,000

Low risk

Invest in AAA–BBB rated bonds

No brokerage

0% brokerage or commission fees

Explore Bonds by Category

High Yield

ICRA BBB

You Invest

₹9,952

Returns (YTM)

13.25%

You Get

₹11,496

Today

15 months

Invest in Tencent Backed, Digitally-Driven NBFC Managing an AUM of 1,700+ Cr

You Invest

₹9,952

Returns (YTM)

13.25%

You Get

₹11,496

Today

15 months

Invest in Tencent Backed, Digitally-Driven NBFC Managing an AUM of 1,700+ Cr

ICRA BBB

CARE BBB+

You Invest

₹1,99,446

Returns (YTM)

13%

You Get

₹2,35,304

Today

29 months

Listed NBFC backed by Kedaara Capital with 47% Capital Adequacy Ratio

You Invest

₹1,99,446

Returns (YTM)

13%

You Get

₹2,35,304

Today

29 months

Listed NBFC backed by Kedaara Capital with 47% Capital Adequacy Ratio

CARE BBB+

INFOMERICS A-

You Invest

₹1,01,884

Returns (YTM)

13%

You Get

₹1,31,056

Today

36 months

Backed by Embassy, a real estate group with INR 12,000+ Cr market cap

You Invest

₹1,01,884

Returns (YTM)

13%

You Get

₹1,31,056

Today

36 months

Backed by Embassy, a real estate group with INR 12,000+ Cr market cap

INFOMERICS A-

What are Municipal Bonds

Municipal bonds are also referred to as ‘muni bonds’. Urban Local Bodies (ULBs) or any institution of self-government constituted under Article 243Q of the Constitution of India are eligible to issue municipal bonds in India.

Municipal bonds have existed in India since the year 1997. Bangalore Municipal Corporation is the first urban local body to issue municipal bonds in India. In March 2015, SEBI issued the SEBI (Issue and Listing of Municipal Debt Securities) Regulations, 2015 (‘ILDMS Regulations’), detailing guidelines for the issue and listing of muni bonds and rendering them safer for investors. In 2019, the RBI allowed Foreign Portfolio Investors to invest in municipal bonds within the limits set for FPI investment in State Development Loans (SDLs).

How to Buy Bonds through Paisabazaar?

Get up to 13.25% from bonds in 5 simple steps

Step 1: Login to your Paisabazaar account

Step 2: Select the Bonds

Step 3: Complete the KYC process

Step 4: Enter bank details

Step 5: Link your demat account

SEBI Guidelines on Municipal Bonds - ILDMS Regulations 2015

A municipal body has to follow the conditions of SEBI Municipal Bond Regulations while making an offer of municipal bond, as on the date of filing of the draft offer document for private placement or preliminary public issue. SEBI ILDMS Regulations deal with:

the eligibility requirement for the public issue of municipal debt securities,
the listing requirements for both private placement and public issues,
conditions for trading of debt securities,
obligations of intermediaries and issuers, etc.

Eligibility Criteria for Issuing Municipal Bonds in India

A municipality should meet the following eligibility criteria to issue municipal bonds in India:

The municipality is eligible to make an issue under its constitution document.
The accounts are prepared in accordance with the National Municipal Accounts Manual or in accordance with a similar Municipal Accounts Manual adopted by the respective State Government for minimum 3 immediately preceding FYs.
The corporate municipal entity shall have surplus income as per its Income and Expenditure Statement. The issuer must not have a negative net worth in each of the 3 previous years.
The municipality must have no default in the repayment of debt securities and loans availed from the banks or NBFCs in the last 365 days.
The municipality, promoter and directors must not be mentioned in the list of willful defaulters published by the RBI. The municipality should have no record of default in the interest payment or repayment of principal with respect to debt instruments.
The issuer has obtained at least one credit rating from a registered credit rating agency.

Listing of Municipal Bonds

The municipality has to make an application for in-principle approval to one or more recognised stock exchange(s) for the listing of its municipal bond. Further, if the bond is issued through a public offer, it is required to be listed on any stock exchange platform within 6 working days from the date of the closure of the issue. In case of private placement, the timeline is within 4 working days from the date of closure of the issue.

Under the amended ILDMS regulations in 2017, Pune Municipal Corporation became the first Indian city to list its bonds on BSE. Indore Municipal Corporation listed its bonds on the NSE platform in 2018. The country's first Municipal Bond Index was introduced by NSE in February 2023.

Types of Municipal Bonds in India

General Obligation Bonds (GO Bonds)

General obligation bonds are commonly used to finance the general operations of the Urban Local Bodies (ULBs) to ensure direct cost recovery from specific projects or functions. The principal and interest are serviced through tax proceeds of the municipality. Examples of such projects include roads and storm water drains, where projects does not generate direct revenues.

Investors can determine the credit quality of general obligation bonds by examining following factors:-

Economic strength and sustainability of the city,
Debt position and financial statements of the ULB,
Organizational efficiency and track record in project execution, and
Legal and Institutional Framework

Revenue Bonds

Revenue bonds are issued to upfront expenditure of a revenue generating project. These bonds are serviced by revenues from one or more projects. Examples include toll roads (where toll revenues can be used to service bonds), water supply and sewage (where user charges are levied).

People also search for

Benefits of Municipal Bonds for Investors

High rated municipal bonds are considered safe and those issued by financially strong municipal corporations or backed by state government guarantees and have strong escrow mechanisms.
These bonds also provide portfolio diversification to their investors as their risk-return profile is different compared to corporate bonds and equity investments.

Drawbacks of Municipal Bonds

A major drawback of municipal bonds is limited liquidity. Investors may find it difficult to sell bonds easily before maturity.
Another drawback is credit risk, especially in revenue bonds. If the project fails to generate revenue, the municipal body may find it difficult to meet its repayment obligations to its investors.

Municipal Bond Issuances in India

According to SEBI statistics, 18 municipal corporations have issued municipal bonds in India since 2017. The coupon rates of bonds issued by these municipal corporations range from 7.15% to 10.23% with tenures ranging from 3 to 10 years. All the municipal bonds available for investment are rated AA by the credit rating agencies. The funds raised through these bonds have

been used for various developmental projects like water supply projects, tertiary sewage treatment plants, liquid waste management projects, residential projects, etc.

Stated below are the list of the municipal bonds issued since 2017:-

Pune Municipal Corporation
Greater Hyderabad Municipal Corporation
Indore Municipal Corporation
Bhopal Municipal Corporation
Greater Vishakhapatnam Municipal Corporation
Ahmedabad Municipal Corporation
Surat Municipal Corporation
Lucknow Municipal Corporation
Ghaziabad Nagar Nigam
Vadodra Municipal Corporation
Pimpri Chinchwad Municipal Corporation
Rajkot Municipal Corporation
Agra Nagar Nigam
Prayagraj Nagar Nigam
Varanasi Nagar Nigam
Greater Chennai Corporation
Gandhinagar Municipal Corporation
Bhavnagar Municipal Corporation

India’s First Green Municipal Bond

Under the Swachh Bharat Mission Urban, Ghaziabad Nagar Nigam (GNN) issued India’s First Green Municipal Bond for the development of a Tertiary Sewage Treatment Plant (TSTP) in April 2021. The base price of the bond was Rs 100 crore, along with the Green Shoe Option of Rs 50 crore. This green municipal bond offers a coupon rate of 8.10%. The central government has incentivised by contributing 13 crore per 100 crore issue, i.e, 19.5 crore for GNN. The Government of UP has also incentivised the issue by providing backing for the Infrastructure Development Fund (IDF).

The details of the Ghaziabad Nagar Nigam green municipal bond are mentioned below:-

Issue Date	Maturity Dates	Coupon (%)	Tenures	ISINs
31 March 2021	6 April 2025	8.10	4	INE0GVF24014
	6 April 2026		5	INE0GVF24022
	6 April 2027		6	INE0GVF24030
	6 April 2028		7	INE0GVF24048
	6 April 2029		8	INE0GVF24055
	6 April 2030		9	INE0GVF24063
	6 April 2031		10	INE0GVF24071

Further, the Indore Municipal Corporation issued its green bonds in February 2023 for the development of a solar power plant of 60 megawatts with a coupon rate of 8.25%.

Swipe to see more table data

How to Buy Bonds through Paisabazaar?

Get up to 13.25% from bonds in 5 simple steps

Step 1: Login to your Paisabazaar account

Step 2: Select the Bonds

Step 3: Complete the KYC process

Step 4: Enter bank details

Step 5: Link your demat account

FAQs

Municipal bonds can be a good investment for risk-aware investors seeking relatively stable returns and portfolio diversification, while supporting urban infrastructure development.

Pune Municipal Corporation, Greater Hyderabad Municipal Corporation, Indore Municipal Corporation, Bhopal Municipal Corporation, Greater Vishakhapatnam Municipal Corporation, Ahmedabad Municipal Corporation are some examples of Indian municipal bonds.

The coupon rate for municipal bonds in India usually ranges between 7.15% and 10.23% p.a, depending on the issuer’s credit rating, market conditions, etc.

The maturity period of municipal bonds in India usually ranges from 4 years to 10 years, depending on the nature of the infrastructure project being financed.