Why Infrastructure Bonds are Gaining Popularity as a Stable, Tax-Advantaged Investment for India’s Future
India’s infrastructure sector has witnessed significant growth, with major developments in highways, metros, and high-speed trains connecting cities across the nation. Despite the strides made, there remains much work to be done in enhancing the country’s infrastructure. Amidst this demand, infrastructure bonds, or infra bonds, have become an increasingly popular financial tool, enabling both the government and private players to fund large-scale public projects.
Infrastructure bonds are long-term debt instruments, typically issued by private companies, state-owned entities, or public sector undertakings. These bonds raise capital to finance the construction of vital infrastructure such as roads, tunnels, bridges, and public transportation systems. Not only do these bonds ensure that essential projects continue to move forward, but they also provide investors with stable and consistent returns over a long period. One of the biggest advantages of infrastructure bonds lies in their long-term nature. With maturities typically ranging from 10 to 15 years, these bonds are an ideal option for investors seeking stability and steady income. The Reserve Bank of India (RBI) has also enabled banks to issue infrastructure bonds with a minimum maturity of 7 years, making them an attractive choice for many.
“Over the past few years, infrastructure bonds have experienced strong growth,” says Swapnil Aggarwal, Director at VSRK Capital. “In FY 2024 alone, around Rs 51,000 crore was raised through these instruments, and projections indicate that the total could reach Rs 1.3 lakh crore by the end of FY 2025.” This growth reflects not only the rising demand for infrastructure projects but also investor confidence in these bonds as a safe, long-term investment. Investors are increasingly drawn to infra bonds for several reasons, including the tax-saving benefits they offer. Many of these bonds come with tax incentives, making them an appealing option for individuals looking to reduce their taxable income while simultaneously benefitting from capital preservation and consistent returns.
Vishal Goenka, co-founder of IndiaBonds.com, explains that these bonds often carry quasi-sovereign backing, reducing the default risk associated with other corporate debt instruments. “These bonds are typically backed by essential government projects, offering a layer of safety that many other corporate bonds don’t,” he says. Furthermore, the predictable revenue streams of the infrastructure projects funded by these bonds provide steady coupon payments for investors. However, infrastructure bonds are not without their challenges. While offering low risk compared to other corporate instruments, they can be subject to interest rate, liquidity, and concentration risks. Harpreet Punj, Director at Anand Rathi Wealth Limited, warns that these bonds typically offer yield-to-maturity (YTM) between 5-10% and may only provide returns of 4-7% after taxes. He suggests diversifying through infrastructure sector-based equity mutual funds as an alternative.
Despite these risks, experts agree that infrastructure bonds remain a strong investment option, particularly in the context of India’s ongoing infrastructure boom. With initiatives like the National Infrastructure Pipeline and the Gati Shakti project focusing on improving key sectors such as highways, rail networks, and energy corridors, the demand for funding infrastructure projects will only continue to grow. This, in turn, is expected to further boost the attractiveness of infrastructure bonds.
“The growth prospects for infrastructure bonds are substantial,” says Goenka. “With the government’s focus on modernising core sectors and encouraging private participation, these bonds offer a valuable opportunity for investors to be part of India’s development story.” He also notes that with rising FD rates, corporates and government-backed entities may turn to debt capital markets for competitive funding, increasing the volume of infrastructure bond issuances. Infrastructure bonds are set to play an instrumental role in shaping India’s future, contributing to both the country’s development and offering a reliable investment avenue. Whether for individual investors seeking stable returns or corporations aligning with CSR goals, infra bonds represent a critical piece of India’s economic growth puzzle, making them a promising investment choice for the future.
