MUNICIPAL BOND INDEX - REPORT AND INDICES
News: NSE
Indices launches Nifty India Municipal Bond Index
What's in the news?
● The
index was launched at a Securities and Exchange Board of India (SEBI) workshop
on Municipal Debt Securities in Bengaluru.
● The
country’s first ever Municipal Bond Index was launched by the NSE Indices Ltd, an NSE arm.
Municipal Bond Index:
● It
will track the performance of municipal bonds issued by Indian municipal
corporations across maturities and having investment grade credit rating.
● Presently,
the index has 28 municipal bonds
issued by 10 issuers all having
credit rating in the AA category.
● The
new Nifty India Municipal Bond Index will track
the performance of municipal bonds issued by Indian municipal corporations
across maturities and having investment grade credit rating.
Features:
● The
index weights based on their outstanding amount.
● The
index is computed using the total return methodology including price return and
coupon return.
● The
index has a base date of January 1, 2021 and a base value of 1,000.
● The
index will be reviewed quarterly.
Municipal bond:
● A
municipal bond is a bond issued by a local government, or their agencies.
● It
is very popular among investors in many developed nations, especially in the
U.S.
● The
Bangalore Municipal Corporation was
the first municipal corporation to issue a municipal bond of Rs.125 crore with
a State guarantee in 1997.
● Access
to capital market commenced in January 1998, when the Ahmedabad Municipal
Corporation (AMC) issued the first municipal bonds in the country without State
government guarantee.
● The
Indian municipal bond market has seen a resurgence of issuances after SEBI's Issue and Listing of Municipal Debt
Securities Regulations, 2015 came into effect and a renewed emphasis on
municipal finance by policymakers.
● As
per guidelines of the Urban Development Ministry, only bonds carrying interest rate up to maximum 8% per annum
shall be eligible for being notified as tax-free bonds.
Significance:
● The
municipal bond market has a potential to play a pivotal role in financing the borrowing requirements of
different municipal corporations in India.
● The
proceeds from bonds issued by municipal corporations can be utilised to finance the expansion of essential
municipal services through growth-driven infrastructure projects and can
contribute to bridging India's urban infrastructure financing gap.