India’s commitment to sustainable finance took a significant step forward in January 2023, when the government issued its first sovereign green bonds worth INR 80 billion. These bonds are designed exclusively to fund environmentally friendly projects while offering investors stable, government-backed returns.
Since January 2024, India has raised INR 440 billion in sovereign green bonds, showcasing strong investor interest in sustainable finance. Platforms like Altifi now allow retail investors to access these bonds conveniently and invest in India’s green future.
What Are Sovereign Green Bonds?
Sovereign green bonds are government-issued debt securities that finance projects with clear environmental benefits. Unlike traditional bonds, the proceeds from green bonds are earmarked for initiatives such as:
- Renewable energy development (solar, wind)
- Sustainable transportation systems
- Water and waste management
- Green buildings and energy efficiency
- Biodiversity conservation and climate adaptation
By investing in these bonds, investors directly contribute to environmentally sustainable projects while receiving periodic interest payments and principal repayment at maturity.
How Sovereign Green Bonds Work
The Sovereign Green Bonds function very similarly to the ordinary long-term government bonds of the country’s central government. The bonds have a fixed interest rate, which is paid twice a year.
- When an investor subscribes, the invested amount becomes the principal for the bond investment.
- The government uses these funds only for environmentally sustainable projects across identified sectors.
- The bondholder receives interest payments every six months based on the stated coupon rate.
- These payments continue throughout the tenure, subject to the terms defined during issuance.
- On maturity, the bondholder receives the final interest payment along with the principal amount.
- The maturity period may vary, commonly ranging between up to 30 years.
- Market prices of these bonds may change before maturity due to interest rate movements.
Sovereign Green Bond Interest Rates
Sovereign Green Bonds may carry slightly lower coupon rates than comparable non-green government securities. This difference in pricing is commonly referred to as a greenium in bond markets.
A greenium reflects investor willingness to accept lower yields for environmentally focused investments. This may reduce the government’s borrowing cost while supporting sustainable financing objectives.
For instance, during January 2023 issuance, the 10-year Sovereign Green Bond carried a coupon rate of 7.29%. On the same day, the benchmark 10-year Government Security yield stood near 7.38%.
In another instance earlier, The 5-year SGrB (maturing 2028) carried a coupon of 7.10%, while the 10-year SGrB (maturing 2033) carried a coupon of 7.29%.
This difference indicated a greenium of approximately 9 basis points for that issuance. Such yield differences depend on market conditions, investor demand, and prevailing interest rate trends. The coupon rate remains fixed at issuance for the entire tenure of the bond. However, Yield to Maturity may change if the bond trades at different market prices.
Can NRIs Invest in Sovereign Green Bonds?
Non-Resident Indians (NRIs) looking to align their goals with India's green growth may consider investing in green bonds. Because these bonds are issued by the central government, NRIs can invest in them without traditional restrictions.
Specifically, these bonds have been added as ‘specified securities’ for the first under the Fully Accessible Route (FAR). This means NRIs can invest in these selected government securities without a ceiling or upper limit. While some other government bonds might have restrictions, SGrBs under the FAR route provide a more open and flexible investment opportunity.
Benefits of Investing in Green Bonds
The following are the key benefits of investing in green bonds:
- Financial Returns with ESG Impact: Green bonds offer competitive fixed returns while financing projects that promote clean energy and carbon reduction. Interest rates on Indian sovereign green bonds typically range between 6.98% and 8.40%, making them attractive for both income and environmental impact.
- Government Backing and Safety: Being government-issued, these bonds carry minimal credit risk. Your principal and interest are virtually guaranteed, offering a secure investment for risk-averse investors.
- Accessibility for Retail Investors: Sovereign green bonds can be purchased through the NSE, RBI’s Retail Direct platform, or selected brokerage firms. Altifi simplifies the investment process, providing guidance and easy access to these bonds.
Examples of Sovereign Green Bonds in India
The Government of India issued its first sovereign green bonds in January 2023. The total issue size was ₹16,000 crore, divided equally across two bond maturities.
| Feature | 5-Year Sovereign Green Bond | 10-Year Sovereign Green Bond |
|---|---|---|
| Name of bond | 7.10% GOI SGrB 2028 | 7.29% GOI SGrB 2033 |
| Issue size | ₹4,000 crore | ₹4,000 crore |
| Issue date | 27 January 2023 | 27 January 2023 |
| Coupon rate | 7.10% | 7.29% |
| Interest frequency | Semi-annual | Semi-annual |
| Greenium | Approximately 10 basis points | Approximately 9 basis points |
| Maturity date | 27 January 2028 | 27 January 2033 |
These issuances aligned with the government's framework for financing environmentally sustainable projects. The framework was outlined by the Ministry of Finance for green expenditure allocation.
Apart from sovereign issuances, several Indian corporates have issued green bonds over time. These non-sovereign green bonds carry different risk levels based on the issuer’s credit profile.
Performance of India’s Green Bonds
India’s green bond market is growing steadily, though it is smaller compared to the global market valued at over $3.5 trillion. Historically, Indian green bonds had a small “greenium” (premium for sustainability), ranging 2–3 basis points, but recent trends show investors now demand higher yields instead of paying a premium.
This indicates a maturing market where sustainability goals and financial returns are balanced for investors.
How to Invest in Sovereign Green Bonds
Investing in sovereign green bonds has become straightforward for retail investors:
- Open Your Account: First, register on platforms like Altifi. Provide PAN details, bank account information, and Demat account details. Complete the eSign process to finish your KYC.
- Choose Your Bonds: Decide based on maturity (5, 10, or 30 years), interest rate, and auction availability.
- Invest and Track: After completing KYC, participate in primary auctions via Retail Direct or purchase listed bonds on exchanges like NSE. Track returns and interest payments regularly.
This seamless process ensures investors are ready to start sustainable investing quickly and safely.
Conclusion
Sovereign green bonds are a powerful tool for investors seeking stable returns while contributing to a sustainable future. Backed by the Indian government, these bonds offer safety, predictability, and the opportunity to participate in ESG initiatives.
For guided access to India’s green bonds and other fixed-income investments, visit Altifi and start building a diversified, sustainable portfolio today.
FAQs on Sovereign Green Bonds
Are green bonds tax-free?
No. Interest income is taxable under “Income from Other Sources” at your applicable tax slab.
How can retail investors buy these bonds?
Through NSE, RBI Retail Direct platform, or brokerage firms. Altifi.ai provides a user-friendly option.
What returns do these bonds offer?
Returns vary by issuance, generally between 6.98% and 8.40%, with semi-annual interest payouts.
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