Market-based Financing Through Municipal Bond in India: Investor’s Checklist Using Structural Equation Modeling (SEM)

This paper aims to analyze the investor’s perspective toward municipal bonds and to inspect the success potential of municipal bonds in India from 2010 to 2020. The research’s conceptual model is drawn using PLS-SEM for the factors impacting investor decisions toward investment in bonds issued by urban local bodies in India. Results show that “credit rating,” “yields,” “tax benefit,” and “financial soundness” significantly affect the choice of investment in municipal bonds by retail investors. However, “transparency,” “liquidity,” and “investor awareness” are not found to be significant. Bond issuers can use the model to recognize the factors impacting investors’ prioritization for investments in municipal bonds, which can also help them target a bigger investor base. The study relies on subjective data provided by retail investors and may not be the clear-cut performance indicators. The limitation of the time frame for the study over 10 years will restrict the results specifically for that period. The importance of retail investors in developing countries’ municipal bond markets has been overlooked. The study’s key contribution will be to assist and empower new retail investors to have confidence in participating in this fixed-income financial instrument.