Infrastructural development shapes how a country grows. Roads, airports, transport systems and power networks need steady long-term funding to be built and maintained. One way government and organisations raise this money is through infrastructure bonds, which help finance essential public projects across different sectors.
Infra bonds are long-term fixed-income instruments created specifically to meet developmental funding needs. In this article, we explore the meaning of infrastructure bonds, focusing on their features, benefits, risks, and suitability.
What Are Infrastructure Bonds?
Infrastructure bonds are long-term bonds issued by government bodies, PSUs, and banks to raise money for infrastructure projects. These projects include building of essential public facilities like:
- Highways
- Bridges
- Tunnels
- Public transport systems
- Power plants
Infrastructure projects require significant long-term funding. Instead of relying only on bank loans, issuers raise this capital through infra bonds. As an investor, you lend money to the issuer and receive fixed interest payments along with the principal at maturity.
Features of Infrastructure Bonds
Now that the meaning of infrastructure bonds is clear, let’s understand their key features:
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- Long-Term Maturity: Infrastructure bonds are typically long-term bonds that come with 10–15 year tenures. Such long tenures align with the long timelines needed for major infrastructural development projects.
- Fixed Interest Payments: Infra bonds offer fixed interest rates. This means you receive stable payouts at regular intervals throughout the investment tenure.
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- Lock-in Period: Typically, infra bonds have a lock-in period of about 5-7 years.
- Government or PSU-Backed Issuers: Most infrastructure bonds are government-backed bonds or issued by PSUs. Backing of credit issuers helps lower the default risk of these bonds.
- Dedicated Use of Funds: Money raised through infra bonds is used only for infrastructural development like transport upgrades, utility improvements, and energy projects.
- Relatively Lower Sensitivity to Market Volatility: Infrastructure bonds are typically less affected by daily stock market movements. Their performance depends mainly on interest rates and issuer strength.
Benefits of Investing in Infrastructure Bonds
Let’s review some of the key benefits of investing in infrastructure bonds:
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Fixed Interest Payments
Infrastructure bonds offer stable returns over the investment tenure. These long-term bonds come with a fixed coupon rate and offer payouts at fixed intervals (typically on a quarterly basis).
This predictability may help simplify long-term financial planning for investors looking for stable income.
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Alignment With Long-Term Goals
Infra bonds typically have long tenures of over 10 years. This may make such long-term bonds suitable options for goals that have long-term planning horizons such as retirement planning.
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Portfolio Diversification
Infra bonds behave differently from equity investments and are less influenced by daily stock market movements. This makes them useful for adding stability during periods of market volatility.
By combining infrastructure bonds with market-linked assets, you may create a more balanced mix of investments. Their steady behaviour may help spread risk and support overall portfolio diversification.
As mentioned earlier, infrastructure bonds are typically government-backed bonds. They are issued by the central or state government or their allied agencies (PSUs).
This sovereign-backing makes them relatively safe and reliable investment options.
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Contribution to National Development
When you invest in infrastructure bonds, you don’t just earn fixed interest income. You also contribute to the nation’s infrastructural development.
Your investment indirects supports various infra projects like building roads, bridges, airports, etc. In other words, your investment may contribute meaningfully to the country’s infrastructural growth for the long-term.
Risks Associated With Infrastructure Bonds
While there are several benefits of infrastructure bonds, they aren’t completely risk-free. Like all investments, infra bonds also have some risks:
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Interest Rate Risk
Interest rate risk means bond values fall when market rates rise and rise when market rates fall.
Infrastructure bonds feel this more because their long tenure reacts more sharply, and the chance of rate changes is higher over long periods than with short-tenure bonds.
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Liquidity Risk
Infra bonds may not be as liquid as some other investment options. In other words, investors may find it difficult to sell these bonds before maturity.
Firstly, these bonds have a long maturity window with a lock-in period of 5-7 years. Even if you wish to sell these long-term bonds on the secondary market, their trading volumes may be low, making it challenging to find buyers.
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Credit Risk
Not all infrastructure bonds are government-backed bonds. If the issuer has a weak financial profile, there is a possibility of delayed interest or principal payments.
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Project Delay Risk
Funds raised through infrastructure bonds support projects like building of roads, bridges, dams, and public transport systems. These large projects can face construction delays or regulatory hurdles, which may affect the issuer’s cash flows and repayment timelines.
Suitability of Infrastructure Bonds
Infrastructure bonds may be suitable for the following:
- Individuals who are looking for fixed interest income.
- Investors planning for long-term goals like retirement.
- Conservative or senior investors who prefer stable interest income and wish to avoid short-term market volatility.
- Investors seeking to diversify their portfolios with long-term debt options.
How to Apply for Infrastructure Bonds?
If you wish to invest in infra bonds, here’s how you can go about it:
Step 1: Open a Demat Account
A Demat account is necessary to hold infra bonds in electronic form. You can open one with any registered depository participant. The demat account ensures secure storage and efficient transaction processing.
Step 2: Choose the Bond Issue
You can invest in newly issued infrastructure bonds through the primary market. These issues are announced through exchange platforms, issuer websites and official communications.
If you prefer existing bonds, you can explore secondary market options based on factors like maturity, interest rate and issuer strength.
Step 3: Complete the Application
Applications can be submitted online or offline depending on the issuer’s process. For online applications, you typically provide your PAN, Demat account details and KYC information. Once the application is accepted and units are allotted, the bonds will appear in your Demat account.
Ready to Get Started? Head to GoldenPi and Start Investing in Infra Bonds
Infrastructure bonds let you participate in long-term infrastructural development while adding stability to your portfolio. They offer predictable payouts and support diversification, but it’s important to understand risks like interest rate changes, liquidity, project delays and issuer strength.
If you want to explore available infrastructure bond options, compare issuers, or view other fixed-income options, you can head to the GoldenPi platform. Here, you can review credit ratings, estimate your returns, check cashflow timelines, and start investing in a matter of minutes!
FAQs on Infrastructure Bonds
What types of projects are financed through infrastructure bonds?
Infrastructure bonds are used to finance long-term infrastructure development projects such as roads, railways, ports and public utilities. They may also support transmission lines, power generation, distribution networks and other essential infrastructural development requirements.
Are there any tax benefits currently available on infrastructure bonds?
No, there are no tax benefits on infrastructure bonds today. Earlier, Section 80CCF allowed a deduction of up to ₹20,000 on eligible infra bonds, but this provision was discontinued from the 2013–14 assessment year.
Do infrastructure bonds offer a fixed interest rate throughout the tenure?
Yes, most infra bonds come with a fixed coupon rate for the entire tenure. This means the interest payout remains the same through the life of the bond, making the income structure predictable.
How do interest rate changes impact the value of infra bonds?
There is an inverse relationship between interest rates and bond value. So, when market rates rise, new bonds offer higher interest, making existing infra bonds less attractive and reducing their value. When rates fall, older infra bonds become more appealing and may gain value.
Disclaimer:
This information is for general information purposes only. GoldenPi makes no guarantee on the accuracy of the data provided here; the information displayed is subject to change and is provided on an as-is basis. Nothing contained herein is intended to or shall be deemed to be investment advice, implied or otherwise. Investments in the securities market are subject to market risks. Read all the offer-related documents carefully before investing.
Bonds or non-convertible debentures (NCDs) are regulated by the Securities and Exchange Board of India and other government authorities. GoldenPi Securities Private Limited is a registered debt broker and acts as a distributor and not as a manufacturer of the product.
