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EXPLAINED: Kochi plans Muni-Bonds to raise funds for development projects

Kerala is on a spree exploring various bonds available in the market to raise funds for development projects. After Masala Bonds, Muni-Bonds are the topic of discussion now in Kerala. Kochi Corporation is all set to become the first local body in the state to raise funds through Muni-Bonds.

Kochi Mayor M Anil Kumar recently confirmed that the corporation had held discussions with a few consulting firms to explore the possibility of tapping “Muni-Bonds”.  Reports said that the corporation officials will soon meet a consulting firm to discuss the possibilities and criteria for raising money through the bonds. “Discussions are at a preliminary stage. We have initiated informal talks with Green Design & Engineering Services Pvt Ltd (Green), a Gujarat-based engineering, designing and consulting firm, to understand the requirement and criteria for issuing bonds,” a report by The New Indian Express quoted Kochi corporation secretary Babu Abdul Khader.

If it gets approval, Kochi Corporation will join the league of other cities like Bengaluru, Pune, Ahmedabad, Surat and Vadodara to raise money through Muni-Bonds.  The fund raised through municipal bonds will be utilised for developmental works under Atal Mission for Rejuvenation and Urban Transformation (AMRUT).

What is a Muni-Bond or Municipal Bond?

A municipal bond or muni bond is a debt instrument issued by municipal corporations or associated bodies in India to raise money. The money raised using the bonds will be exclusively used to finance projects for socio-economic development mainly building bridges, schools, hospitals and providing proper amenities to households. Only an institution or a municipality with favourable credit ratings can secure a bond only.

It is usually for 10 years tenure and Bonds are issued to institutional and high net-worth individuals. The face value of each instrument slot of a municipal bond is a minimum of Rs 10 lakh. It can be subscribed to (purchased) by a single investor or multiple investors.

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What are the benefits for a municipal bond investor?

Though municipal bonds may have lower interest rates compared to high-risk investments like corporate bonds or stocks, they offer stability for your capital. Interest from muni-bonds usually get tax-exemption. The principal amount is returned in a specific maturity date. The borrower (local body) provides returns on investment in muni-bonds from either taxes collected on a project developed using muni-bonds.

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