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Green Bonds in India: Meaning, Types, Features & How to Invest

As more people wake up to the urgent need to fight climate change, investing is not just about making profits but about making a difference. That’s where Green Bonds come in. These special bonds allow investors to support projects that truly matter, like solar power, electric buses, and cleaner air.

In India, sustainable finance is catching on fast, with government and private companies stepping up. Green Bonds are helping turn good intentions into real action, creating a greener and better future for everyone.

What are Green Bonds?

Think of Green Bonds as a special loan you give to companies or governments with a green twist. Like traditional bonds, Green Bonds are fixed-income securities, meaning you lend money and get regular interest payments plus your principal back after a set period.

The difference? The money raised through Green Bonds is exclusively used to fund projects that benefit the environment, like building solar farms, improving public transport, or cleaning up pollution.

Imagine you’re helping build a wind energy park or a water conservation system, but instead of doing it yourself, you invest in a Green Bond. Your investment supports these eco-friendly projects while giving you steady returns, typically between 8% and 14%. So, you’re not just earning money but also contributing to a greener, healthier planet.

How Do Green Bonds Work in India?

The mechanics of Green Bonds in India are quite similar to regular bonds. Governments, companies, or financial institutions issue these bonds to raise capital. The money collected is then channelled into environmentally sustainable projects such as renewable energy installations, pollution control, or green infrastructure development.

For example, a company may want to build a solar power plant. It issues Green Bonds to investors, promising to pay interest regularly and return the principal at maturity. The funds raised are used solely for the solar project, and the company must provide clear reports on how the money is spent and the environmental benefits achieved. This transparency is crucial—it assures investors that their money truly supports green initiatives.

The Origin of Green Bonds

The idea of Green Bonds gained momentum following the 2007 Intergovernmental Panel on Climate Change (IPCC) report that underscored the imperative to address global warming. The World Bank issued the first Green Bond in 2008, leading the way globally for sustainable finance. Since then, regulatory frameworks have developed worldwide to ensure these bonds are credible and transparent. Today, Green Bonds are a key tool for financing climate-friendly projects globally, including in India.

Features of Green Bonds in India

Here’s what makes Green Bonds in India stand out:

  • Stable Returns: Like most bonds, Green Bonds offer fixed or predictable interest payments until maturity, making them a reliable income source.
  • Social Responsibility: Your investment directly supports projects that improve the environment, so you’re contributing to a better future.
  • Lower Risk: Debt instruments like bonds generally have less price volatility than stocks, making Green Bonds a safer investment option.
  • Tax Benefits: Some Green Bonds have tax incentives, enhancing your overall returns.
  • Transparency: Issuers must disclose how funds are used and the environmental impact, giving investors confidence and clarity.

Principles Behind Green Bonds

The International Capital Market Association (ICMA) has established definite guidelines to ensure the integrity of Green Bonds:

  • Funds thus collected should be utilised solely for environmental purposes.
  • Issuers should be clear on their sustainable objectives and how they handle the funds.
  • Regular updates and third-party audits ensure accountability.
  • Investors get clear reports on the environmental impact of their investment.

Types of Green Bonds in India

When considering investments in environmentally sustainable projects, it’s important to understand the different structures and features of Green Bonds in India. Each type of Green Bond is designed to meet specific financing needs and risk profiles, providing investors with options that align with their financial goals and commitment to sustainability.

  • Sovereign Green Bonds: Issued by the government to fund large-scale green infrastructure projects like solar parks or metro rail systems. These often come with tax benefits and longer maturities.
  • Hybrid Bonds: Also called covered bonds, they offer investors dual protection;   if the issuer defaults, investors can claim repayment from the issuer and a pool of assets backing the bond.
  • Asset-Backed Bonds: These are secured by specific assets, such as a solar farm or wind turbine, which generate cash flow to repay investors.

Advantages of Investing in Green Bonds

Green Bonds offer several benefits that make them attractive to investors:

  • Competitive Returns: They often provide fixed returns in the range of 8% to 14%, which is appealing compared to other fixed-income options.
  • Support for Big Projects: Green Bonds fund capital-intensive projects that might otherwise struggle to find financing.
  • Environmental Impact: Your investment helps reduce carbon emissions, promote renewable energy, and protect ecosystems.
  • Lower Interest Costs for Issuers: Because Green Bonds attract strong investor interest, issuers often enjoy lower borrowing costs than traditional loans.
  • Encourages Sustainable Practices: Investing in Green Bonds motivates companies and governments to pursue environmentally responsible projects.
  • High Transparency and Credibility: Regulatory compliance and regular reporting ensure your money is used as promised.
  • Tax Efficiency: Some Green Bonds have tax advantages, boosting net returns.

Real-Life Example: Investing in a Solar Farm via Green Bonds

Imagine a solar farm project set up as a special purpose vehicle (SPV)—think of it as a dedicated container holding only this solar asset. When you invest in Green Bonds issued by this SPV, your returns depend on the solar farm’s performance. The energy it generates translates into revenue, which is then used to pay you interest and eventually return your principal. This structure provides security and clarity, linking your investment directly to the project’s success.

Who Can Invest in Green Bonds in India?

Green Bonds in India are open to retail investors, corporates, institutions, and NRIs, subject to regulations. 

Bondbazaar makes it easy to invest in Green Bonds. You can buy them through your Demat account with clear and transparent terms. It’s a simple way to support eco-friendly projects while also investing your money.

Why Green Bonds Matter for India

India faces significant environmental challenges, from rising temperatures to air pollution and water scarcity. Green Bonds are important in financing solutions that address these issues while supporting the country’s economic growth. The government has actively promoted Green Bonds in India since 2015, offering tax incentives and raising funds for green projects.

For example, the government’s sovereign Green Bonds fund initiatives include solar and wind energy, urban mass transit, and pollution control. These projects help India meet its ambitious renewable energy targets and reduce its carbon footprint.

Conclusion

Green Bonds in India offer a unique opportunity to earn stable, attractive returns while supporting projects that make a real difference to the environment. They blend financial growth with social responsibility, making them ideal for investors who want their money to work harder, not just for themselves but for the planet as well.

If you want to add Green Bonds to your portfolio, Bondbazaar makes it easy. Bondbazaar offers over 10,000 bonds, including Green Bonds, across government securities, corporate bonds, and more. You can buy or sell bonds with a click on their real-time trading platform, with zero account opening, brokerage, or maintenance charges. Plus, all bonds are held in demat form, and interest and principal payments are credited directly to your bank account.

Ultimately, Green Bonds are more than just investments—they’re a way to contribute to a sustainable future. Ready to invest in India’s green future? Explore Green Bonds now on Bondbazaar and start earning returns with impact.

Frequently Asked Questions

Q1. What are Green Bonds in India?

Green Bonds are fixed-income instruments where the funds raised are used exclusively for environmentally sustainable projects, such as solar or wind energy.

Q2. Are Green Bonds safe to invest in? 

Green Bonds, especially those issued by the government (sovereign), are usually low-risk. Bonds from private companies may offer higher returns but can come with more risk. It's advisable to review the details carefully before investing.

Q3. Who can invest in Green Bonds in India? 

Retail investors, corporates, non-resident Indians (NRIs), and institutions can invest in Green Bonds through Bondbazaar, in accordance with SEBI regulations.

Q4. Do Green Bonds offer tax benefits?  

Some Green Bonds, especially government-issued ones, may offer tax exemptions. Always verify tax implications before investing.

Q5. How can I invest in Green Bonds online?  

You can invest in Green Bonds through Bondbazaar, which allows demat-based purchases and real-time bond trading.