Green Bonds in India: Types, Meaning & How to invest

What are Green Bonds?

A green bond is a debt instrument designed specifically to support specific climate-related or environmental projects. Investing in Green Bonds is a good choice also for the retail investors.

They are used to finance projects aimed at sustainable agriculture, pollution prevention, fishery and forestry, clean water and transportation, along with environment friendly water management projects.

Who issues these Bonds?

Companies willing to raise required money from green projects issues Green Bonds in India.

Types of Green Bonds in India

Green bonds are majorly divided into three types. They are a good source for safe investment. For the corporates, it is one of the best tools to raise fund to support environment or climate related projects.

Organization-guaranteed Bonds – it is also known as general obligation bonds. The bonds credit-worthiness is based on the organization issuing the bond. The Organization-guaranteed bonds can be corporates, government, or public institutions.

Asset-backed bonds
the credit-worthiness in asset-backed bonds is tied only to the expected revenue from the solar farm and not the other cash flows of the issuer. The solar farm asset is transferred into a separate entity, known as a special purpose entity (SPE) or special purpose vehicle (SPV). This entity holds just this asset. The lenders are repaid only from the earned revenue from the farm.

Hybrid bond
it is a dual-recourse bond. Hybrid bonds are also popularly as covered bonds. It can be a two-way structure – in the first method if there is the condition of payment default, the lender will have the right over the farm. He /she can claim on other assets if the farm value is not enough to pay the lender. The farm is in an SPE in the second method. In the condition of default, the SPE assets are transferred to the lender. If the farm value is not enough to pay the lender, the hybrid bond holder can claim other assets as well.

Sovereign Green Bonds it is issued for an average tenure of 14 years or more. Sovereign Green Bonds is allocated to fund projects associated with climate adaption and climate mitigation. The green bond holders also enjoy tax benefit. Sovereign green bonds are suitable for investors having interest in environment and climate conservation projects.
Sovereign green bonds are also a secure source for fixed income.

Interesting Fact The first official Green Bond was issued in the year 2009 by World Bank.

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Asset-backed bonds
the credit-worthiness in asset-backed bonds is tied only to the expected revenue from the solar farm and not the other cash flows of the issuer. The solar farm asset is transferred into a separate entity, known as a special purpose entity (SPE) or special purpose vehicle (SPV). This entity holds just this asset. The lenders are repaid only from the earned revenue from the farm.

Hybrid bond
it is a dual-recourse bond. Hybrid bonds are also popularly as covered bonds. It can be a two-way structure – in the first method if there is the condition of payment default, the lender will have the right over the farm. He /she can claim on other assets if the farm value is not enough to pay the lender. The farm is in an SPE in the second method. In the condition of default, the SPE assets are transferred to the lender. If the farm value is not enough to pay the lender, the hybrid bond holder can claim other assets as well.

Sovereign Green Bonds it is issued for an average tenure of 14 years or more. Sovereign Green Bonds is allocated to fund projects associated with climate adaption and climate mitigation. The green bond holders also enjoy tax benefit. Sovereign green bonds are suitable for investors having interest in environment and climate conservation projects.
Sovereign green bonds are also a secure source for fixed income.

Interesting Fact The first official Green Bond was issued in the year 2009 by World Bank.

Features of Green Bonds in India

In order to enhance the attractiveness of Green Bonds, they usually come with tax incentives.
Green Bonds are a good tool for investment.
The investments in green bonds are safe and secure.
The raised funding is used to support projects related to climate and environment conservation.

Why Invest in Green Bonds?

The Green Bonds have higher coupon rates as compared to the corporate government bonds with identical tenure. The investment in green bonds is secure and free from hassle.

Advantages of Investing in Green Bonds

Improves Issuer Reputation

The issuer gets the advantage of branding and reputation management. Green Bonds improves the issuer's reputation and highlights its dedication to sustainable development.

Yield on Investment

Green bonds are a good investment options for the investors interested in decent return on investment. The yield in green bonds is relatively better.

Safe Investment

Unlike other government bonds, green bonds are considered safe. However, it is advised to take your investment decision considering certain essential factors and hour financial goals.

Who Should Invest in Green Bonds?

Investors looking for an alternate source of income and a love for environment conservation should invest in green bonds. Also, investors interested in tax exemption can prefer green bonds for the safe investment.

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Frequently Asked Questions

What are green bonds?

Green bonds are the bonds issued by government, corporates, and institutions in public working on the projects related to conservation of climate, environment, and other renewable energy.

What are the types of green bonds?

There are three major green bond types.

Why prefer BondsIndia for the potential trade in bonds?

BondsIndia powered by Launchpad Fintech is a fast growing and secure online platform for the India’s biggest library of bonds listed on SEBI. Also, we believe in offering professional services to our valued clients.

Why invest in green bonds?

Investment in green bonds is safe and is a good source of income exempted from tax.

How much can I invest in green bonds?

The amount of investment in green bonds depends on your personal capability and goals in life.

What it the issuer defaults?

Incase the issuer defaults, the lender can claim the farm and other assets to recover the lended capital.

Where are the green bond funds used?

The green bonds funds are used to finance climate and environment-friendly projects.