Appeal of infrastructure bonds

Indian cities have seen an infrastructure boom in the past decade or more, with the expansion of national highways, metro and high-speed trains adding to the inter-connectedness. However, there’s still a lot of work to be done when it comes to revamping the infrastructure. A financial instrument that directly contributes to this growth is infrastructure bonds, more commonly known as infra bonds.

In the Indian context, infrastructure bonds are long-term debt instruments issued by private companies or state-owned entities, including public sector undertakings and banks, to finance large-scale infrastructure projects. Such projects typically involve the construction of highways, tunnels, bridges and public transit systems, among other critical public assets.

They offer benefits to both issuers and investors. Issuers can secure the necessary funding for essential projects, while investors benefit from stable and consistent returns, making these a valuable addition to long-term investment portfolios. By purchasing these bonds, investors provide the necessary capital and earn periodic interest payments.

Infra bonds are typically long-term investments, with maturities often ranging from 10 to 15 years. The Reserve Bank of India permits banks to issue infrastructure bonds with a minimum maturity of 7 years, making these an attractive option for those looking to invest in stable, long-term instruments.

However, as with any investment in debt securities, infra bonds come with risks, including the possibility of delays or default in payment. It’s essential to read all the offer-related documents carefully.

Infra bonds typically offer relatively lower risk compared to other corporate instruments, underpinned by strong government support or the essential nature of the projects. Many of the bonds come with tax incentives, making these an attractive option for individuals seeking both capital preservation and potential tax benefits.

According to Swapnil Aggarwal, director, VSRK Capital, in 2024, infrastructure bonds performed exceptionally well. “Over the past 3-4 years, infrastructure bonds have shown significant growth, with a total of around Rs 2.8 lakh crore raised. The breakdown is as follows: Rs 29,600 crore in FY 2022, Rs 58,400 crore in FY 2023, and Rs 51,000 crore in FY 2024. As of now, an estimated Rs 80,000 crore has been raised in FY 2025, with projections indicating that the total could reach Rs 1.3 lakh crore by the end of the financial year. These figures point to a promising outlook for both issuers and investors in the infrastructure bond market,” he says.

Advantageous options

Investing in infra bonds offers a blend of stability and income potential. Experts feel that it can be a highly advantageous decision in the current market scenario. “These bonds offer tax-saving benefits, making them an appealing option for investors looking to reduce their taxable income. Additionally, infrastructure bonds provide the potential for stable and consistent income growth, offering a reliable investment strategy over time,” says Aggarwal.

Furthermore, during periods of inflation, these bonds have historically outperformed other investment avenues, offering protection and ensuring the safety of investors’ capital.

Vishal Goenka, co-founder of IndiaBonds.com, is of the view that by investing in infra bonds, investors may enjoy steady coupon payments backed by the project’s predictable revenue streams. “Second, these bonds often carry quasi-sovereign backing, reducing default risk and lending an added layer of safety. Third, certain issues come with tax benefits or slightly higher interest rates designed to encourage longer holding periods,” he says.

According to Goenka, for investors looking to diversify their fixed-income portfolio while actively participating in India’s development story, infra bonds can be a compelling choice.

Harpreet Punj, director and unit head, Chandigarh, Anand Rathi Wealth Limited, has a different take. “Infrastructure bonds are offering only 5-10 per cent YTM (yield to maturity is an estimate of the total return an investor can expect from a bond if they hold it until it matures) on an average, depending on the type of bond. Post the tax, returns of the bonds would vary between 4-7 per cent. They also face interest rate risk, liquidity risk and concentration risk as you are concentrated on one bond in particular. If you want to explore this segment, you can opt for an infrastructure sector-based equity mutual fund as it is a quasi-diversified category with allocation to 8 out of 11 sectors. This category fund is well suited without taking concentration risk,” Punj says.

Future outlook

Investment advisers opine that infra bonds hold significant potential as an investment option in the near future. The appeal lies in several key factors, including past performance, growth projections and the benefits they offer to investors. “With the ongoing economic stimulus measures, they are well-positioned to benefit from the continued development of essential infrastructure projects. Given these advantages, infra bonds are poised to become an increasingly attractive choice for investors looking for reliable, long-term investment opportunities,” says Swapnil Aggarwal.

In the ensuing Union Budget, infra bonds are expected to get a boost. “The futuristic outlook of this segment is strong and investors can explore this segment via infrastructure category equity MF,” says Punj.

Goenka feels that the growth prospects appear robust, particularly as India intensifies its focus on modernising core sectors. “Flagship initiatives like the National Infrastructure Pipeline and the Gati Shakti project underscore the government’s commitment to strengthening highways, rail networks, and energy corridors. This momentum not only stimulates fresh capital requirements but also attracts diverse investor categories — from retail participants to global institutions. Additionally, ongoing reforms in the fixed-income segment and potential index inclusions may open doors to broader market access and deeper liquidity.”

With fixed deposit rates edging higher, corporates and government-backed entities may increasingly tap the debt capital markets to secure funding on competitive terms, so experts anticipate a greater volume of issuances through capital markets, which are continuously becoming more efficient.

As the ecosystem continues to evolve, infrastructure bonds stand poised to play an instrumental role in fuelling the country’s next phase of economic transformation.

In addition to governmental initiatives, private sector participation is also expected to rise. As corporations recognise the potential of infrastructure bonds not only as an investment vehicle but also to align with corporate social responsibility (CSR) objectives, experts anticipate an influx of capital into this segment.