IMC launches India’s first municipal bonds to raise Rs.244 crores. Should you add them to your portfolio?

Should investors invest in India’s first municipal bonds?

India’s first municipal bonds

Bonds are debt instruments that entities issue to raise debt capital for their financial needs. Most bonds offer guaranteed returns on investment at the predefined coupon rate. Many of them are also traded on the stock exchange for easy liquidity.

While government and corporate bonds are common, municipal bonds have never been issued for retail investors. The Indore Municipal Corporation is breaking this norm with its maiden bond offer. This offer will make municipal bonds the newest thing to hit the retail investment market.

Municipal bonds – the concept

Municipal bonds differ from other bonds only in the entity that offers such bonds. Municipal corporations issue municipal bonds to raise funds for their financial needs. Usually, such bonds are issued for institutional investors. The Indore Municipal Corporation (IMC) is the first municipality to come up with the concept of such bonds for retail investors.

About IMC Municipal Bonds

The IMC Municipal Bonds are being issued to raise funds for powering a solar power project. Here are the details of the bond issue –

  • The bond issue size is Rs.122 crores. However, the IMC has proposed to retain a 100% oversubscription, doubling the bond size to Rs.244 crores.
  • The bond issue opens on 10th February and closes on 14th February 2023.
  • The bond is also called the green bond because the funds raised would be used to power a 60 MW photovoltaic power plant. The plant is in Ashukhedi and Samraj's villages in the Khargone district of Madhya Pradesh.
  • The bonds are secured non-convertible with a face value of Rs.1000 each. The coupon rate is 8.25%, payable half-yearly.
  • The minimum investment required is Rs.10,000. This would give you 10 non-convertible debentures. Each non-convertible debenture comprises four separately transferable and redeemable principal parts (STRPP), each valued at Rs.250.
  • The tenure of the bond is as follows –
Tenure of the bond
  • India Ratings & Research has assigned the AA+ rating with a stable outlook, while CARE Ratings has rated the bond AA with a stable outlook.
  • You can apply for the bond through the ASBA (Application Supported by Blocked Amount) mode through your bank, stockbroker, registrar, and transfer agents or the stock exchange.
  • 25% of the issue is allocated to retail investors, who would be allotted bonds on a first-come basis.

Related - Read more about municipal bonds offering more than 8% returns.

Should you invest in the bond?

The maiden municipal bond has many pros and cons for investors. Have a look –

pros and cons for investors

So, assess these pros and cons and then take your decision.

Related - Here's an overview of Sovereign Green Bonds

Watch this video to learn about IMC's latest green bonds.


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