Green Bond Investment: Currently, most people opt for Fixed Deposits (FDs) or invest in mutual funds and the stock market. However, some investment avenues offer financial returns while also supporting beneficial causes. Green bonds are one such investment option. The funds raised through these bonds are typically utilised for environment-related projects, such as renewable energy, clean transportation, energy efficiency initiatives, and other green projects.
If you are looking for such an option for your investment portfolio, green bonds could be an excellent choice. You can invest in green bonds issued by governments (Sovereign Green Bonds), as well as those issued by corporations and other entities.
What is a Green Bond?
A green bond is a type of debt security. Simply put, when a government, company, or other eligible entity needs to raise funds for a project, it can issue bonds. The distinguishing feature of a green bond is that the proceeds are specifically earmarked for eligible environment-related projects—such as solar power plants or wind energy initiatives.
Investors purchase these bonds, providing capital to the issuer, and in return, receive interest or returns based on the bond’s terms. The bond is redeemed upon maturity. However, actual payments and associated risks depend on the bond’s specific terms and the issuer’s financial standing.
What are Sovereign Green Bonds?
When the Government of India issues green bonds for environment-related projects, they are known as Sovereign Green Bonds. The RBI Retail Direct platform offers a straightforward way to invest in them. Through RBI Retail Direct, investors can directly invest in government bonds. When a Sovereign Green Bond issue becomes available, eligible investors can apply.
Why are people investing in Green Bonds?
A key attraction of investing in green bonds is that the objective goes beyond mere financial returns; investors become part of a system that finances environmentally friendly initiatives. Additionally, green bonds vary in tenure and risk, allowing investors to choose options that match their needs and risk appetite.
How to invest in Green Bonds?
Sovereign Green Bonds via RBI Retail Direct
RBI Retail Direct is a key channel for investing in government Sovereign Green Bonds. To get started, one must first register on the platform and complete the KYC process. Once registered, investors can view available Sovereign Green Bonds and submit an application following the prescribed procedure.
Buying Green Bonds via Demat Account
If a green bond is listed on a stock exchange and available for trading in the secondary market, investors can purchase it using their Demat and trading accounts. The process is similar to buying shares. Investors can view their bond holdings and understand details such as price, maturity, and other specifications.
Investing via Online Bond Platforms
Some investors explore green bond options through online bond platforms. Before investing in bonds offered on such platforms, it is essential to verify that both the platform and the bonds comply with regulations. When investing in corporate or municipal green bonds, one should assess the financial health of the issuing company or entity.
Things to consider before buying Green Bonds
It is advisable not to rush into investing in green bonds. Before purchasing, gather information about the bond-issuing entity. Also, check the interest (coupon) rate and understand the bond’s tenure. If buying from the secondary market, consider the yield based on the price, not just the coupon rate. Green bonds also carry credit ratings; ensure you check these as well. Additionally, familiarise yourself with the applicable tax rules.
Complete KYC before investing in green bonds
Completing the KYC (Know Your Customer) process is mandatory before investing. Investors must provide necessary details regarding their identity and banking information. Essential documents include a PAN card, bank account details, and Demat account information.
Green bonds carry risks
Be aware that green bonds involve risk; they are not considered entirely risk-free investments. The nature of risk differs between government green bonds and corporate green bonds. Corporate bonds carry the risk of issuer default. Furthermore, if selling a bond in the secondary market, the selling price could be lower than your purchase price. Therefore, it is important to be well-informed before investing.