Infrastructure bonds are bonds issued by local or national governments to investors to help fund projects devoted to improving the infrastructure of a society. Such projects may include work done on roads, power grids, waterways, bridges, or anything else that helps a society either financially or socially. Investors buy infrastructure bonds for a set price and are entitled to receive regular interest payments as well as the eventual return of the principal of the bonds. Governments can pay back the debt on the bonds through fees generated by the new projects funded by the bonds.
Investors looking for safe investments often look to bonds as their financial instruments of choice. Bonds are known as fixed income instruments because they return regular payments to investors in the form of interest paid out by the issuers of the bonds. Basically, a bond is just a loan given out by an investor to the institution trying to raise funds. When a government needs capital to fund some new construction project devoted to improving the quality of life in their society in some way, they may decide to issue infrastructure bonds.
These infrastructure bonds can be used to fund any type of project that makes life easier for the citizens of a society. For example, a new road might be needed to facilitate travel from one destination to another. Repair work might be needed on old telephone poles to improve communications. Instead of raising taxes, a government may use bonds to raise the money necessary for these tasks.
For the individual investor, infrastructure bonds can have many benefits. These bonds are generally safe, since they are backed by a local or national government and the treasuries they control. Although interest payments are generally low with these bonds, they do provide a steady stream of income for the entire bond term. In addition, investors also know that their funds will be utilized to improve day-to-day living in their towns or countries. Some countries issuing the bonds even offer tax incentives for investors.
The government issuing the infrastructure bonds must have a way of paying back investors. This can often be achieved by any fees associated with a specific infrastructure project. For example, a government might build a highway with the funds generated from investors. They can collect tolls from all of the vehicles that use the road each day. These fees would be used to pay off the interest and the principal on all the debt issued in the form of bonds.