Social Bonds

Social bonds are debt instruments designed to raise funds for new and existing projects with positive social outcomes such as healthcare, affordable housing and employment generation. These bonds are designed to fund projects that have a positive impact on society or address social and environmental challenges. Like regular bonds, social bonds offer fixed returns with lower risk to its investors, depending on the creditworthiness of the issuer. 

In September 2023, the National Bank for Agriculture and Rural Development (NABARD) issued India’s first ‘AAA’ rated Indian Rupee-denominated Social Bonds, having a coupon rate of 7.63% p.a. with a total size of Rs 1,040.50 crore. This 5 year redeemable and non convertible bond was privately issued to eligible institutional investors, as per the Development Finance Institution’s (DFI) statement and was listed on BSE. A subset focusing on "pay-for-success" social impact bonds, such as the Pimpri-Chinchwad municipal bond for healthcare, is also gaining popularity in India.

In June 2025, the Securities and Exchange Board of India (SEBI) introduced the ESG Debt Securities Framework detailing social bonds, sustainability bonds, sustainability-linked bonds and green bonds. This includes definitions for eligible social projects, post-issuance reporting and impact tracking, education, employment generation, health and more.

Definition of Social Bonds

According to SEBI NCS Regulations, SEBI LODR Regulations, 2015 and Framework for ESG Debt Securities (effective from June 5, 2025), social bonds refer to a debt security wherein the funds are to be utilised for social project(s) that directly aim to mitigate or address a specific  social issue  and/or  seek  to  achieve  positive  social  outcomes falling under any of the following categories:

Responsibilities of Social Bond Issuer

Investing in social bonds in India primarily involves two routes – the primary and secondary markets. Investors can buy bonds through public issues or private placements. In a public issue, the issuer invites the general public to subscribe to its bonds, whereas private placements of bonds in India are usually offered to qualified institutional buyers.

Once a social bond is listed on a stock exchange (i.e. in the secondary market), investors can purchase bonds directly from its existing investors through the Bombay Stock Exchange (BSE)/National Stock Exchange (NSE) at its prevailing market price.

Alternatively, investors can also buy social bonds through OBPP (Online Bond Platform Providers) and conventional stock brokers. 

The interest earned on the social bonds are taxed as per the investor’s slab rate and is added under the section ‘Income from Other Sources’. 

The capital gains are also taxed as per the Income Tax Act. The taxation depends on how long an investor has held social bonds. Short-term capital gains is taxed as per the tax slab rate if an investor has held bonds for less than 12 months. Long-term capital gains is taxed at 12.5% (without indexation) if listed bonds are held for more than 12 months.

Further, TDS @ 10% is deducted if interest income exceeds Rs 10,000. Investors should understand the implications of tax on bonds before investing.

Social bonds and Social Impact Bonds, or SIBs, are different in terms of structure and risk. Social bonds are regular for funding social projects and providing fixed returns to its investors. On the other hand, SIBs are contracts wherein private investors only get returns if specific social outcomes are achieved, bearing the risk of loss.

Social bonds have low default risk, depending on the bond issuer's creditworthiness. SIBs carry high-risk as the returns are totally dependent on the achievement of the social outcome. Investors of SIBs may lose their entire investment if social targets are not achieved.