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A municipal bond is a bond issued by a local government, or their agencies.
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‘Muni bonds’ are very popular among investors in many developed nations, especially in the U.S., where these have attracted investments totalling over $500 billion and are among preferred avenues for household savings.
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The Bangalore Municipal Corporation was the first municipal corporation to issue a municipal bond of Rs.125 crore with a State guarantee in 1997. However, the 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 for financing infrastructure projects in the city. AMC raised Rs.100 crore through its public issue.
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Among others, Hyderabad, Nashik, Visakhapatnam, Chennai and Nagpur municipal authorities have issued such bonds
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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:
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Money needed for urban governance can be raised via this route
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India needs 1 trillion dollar for infrastructure development. Bond market can be an effective way to raise this money.