Green Bonds Compare

Additional Useful Information

• When an investor purchases a Green Bond, the issuing company is bound by a legal contract wherein they are obligated to make interest payments as per the coupon rate to the investor.

• Every Green Bond is assigned a credit rating by a credit rating agency. Higher credit ratings mean that the safety of the investment is higher, and therefore risks involved are lower. However, lower credit means that the risks of investing in such bonds are higher. Typically, Green Bonds are issued by governments or government backed companies hence, they have high credit ratings.

• Investing in Green Bonds is suitable for investors who desire regular passive income and wish to contribute to environmentally friendly projects.

• The prices of Green Bonds keep changing with a changing economic environment and government policies.

• The phrase “green bond” is sometimes used interchangeably with “climate bonds” or “sustainable bonds.”

Returns *

• Green Bonds do not guarentee any returns. However, the probability of negative returns are medium.

• Typically, Green Bonds can guarantee returns ranging from 6.5% and 8.5% depending on the duration for which they are held and the government policies.

• Green Bonds usually provide higher returns as compared to bank fixed deposits. (moved from top to bottom)

Risk Level

• Green Bonds are considered low risk investments. They are riskier as compared to fixed deposits.

• Green Bonds have a credit risk associated with them. This means that if the company issuing these bonds default in their commitments, the investor can make losses on the investment. However, this risk is negligible since these bonds are issued by the government.

• Based on the credit risk, all bonds are provided with a credit rating by a credit rating agency. This helps in determining how safe or risky the bonds are. Investors should analyse this rating to understand the risk more accurately.

Liquidity

• Green Bonds are liquid.

• They can be sold at any given time prior to maturity. However, it is possible that there may not be a buyer for the bond. There is no guarantee that the bond will be sold.  In this event, the investor continues to hold the bonds till maturity and earn the interest till maturity.

Interesting Facts

• In a first, India approved the framework for Sovereign Green Bonds in 2022. These bonds were auctioned in January 2023. More issues will continue in the future similarly.

• Green Bonds are often considered a niche investment.

Tax Implications

• Earnings received from Green Bonds are taxable.

• Interest earned by investors from Green Bonds are to be added to their total taxable income and taxes are required to be paid as per the income tax slab.

• When investors sell Green Bonds prior to maturity, the difference between the Sale Amount and Purchase Amount is typically called “Capital Gain” or “Capital Loss” (if sale amount is lesser than the purchase amount).
• Situation 1 – If the Green Bonds are sold within a period of 2 years from investment, the Capital Gains earned (called Short Term Capital Gains) are to be added to the taxable income of the investor and taxes are required to be paid based on the applicable income slab.
• Situation 2 - If the Green Bonds are sold after a period of 2 years from investment, the Capital Gains earned (called Long Term Capital Gains) are to be taxed at the rate of 12.5%.

• There is no tax in case of “Capital Loss”.

Where To Invest

• https://www.bondsindia.com/green-bonds.html