Why don't Indians invest in municipal bonds?
Municipalities collect property tax and have projects to finance
. Our lives are also a lot more affected by municipalities rather than the Union govt. It is they who collect garbage, supply water and keep the roads clean (in theory
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Quite simply, until Indore Municipality came out with a public issue on Feb 14th 2023, municipal bond issues were few and far between. They were also 'privately placed' - offered to select investors. The minimum face value (until Oct 2022) for private placement was Rs 10 lakh.
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Indore Municipality's issue is path breaking. Coupon (interest rate) of 8.5% and minimum investment of Rs 10,000 and to be listed on exchanges. If more municipal corporations follow suit, we might one day have a thriving muni bond market.
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Some things to note. In the US, muni bond interest is generally exempt from federal income tax. India has no such exemption. Further, muni bonds do not have a 'sovereign guarantee' like G Secs. Even in case of state govt bonds, the guarantee is implicit.
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So even Indore Municipal Corporation's bond issue got a AA+ rating rather than AAA. That said, the repayment is backed by escrowed (earmarked) tax revenue and so far no municipality has defaulted. For now, there's not much to do, except wait and watch for more issuances.
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Interesting. New learning for today.. Thanks for sharing.Just curious if these local (Indore) Municipal bonds would be open only for any individual from India or restricted only for people from that location (Indore)?
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