With the digital revolution in India, risk-averse investors now have a plethora of investment instruments to choose from, rather than relying solely on bank fixed deposits.

State development loans (SDL) are one such fixed-income, low-risk, better returns, and liquid security that allows an investor to participate in the growth story of any Indian state.

These securities are also available for purchase and trading by retail investors through the RBI Retail Direct platform. In January 2022, the Reserve Bank of India (RBI) launched the RBI Retail Direct platform, which will assist retail investors in considering investments in low-risk long-term central and state government bonds.

What Exactly Are SDLs?

State Developmental Loans (SDLs) are bonds issued by state governments in India to raise funds for development projects and infrastructure. They are an important source of financing for state governments and provide an opportunity for investors to invest in the growth and development of their state.

State Development loans are issued by the Indian states also to meet their fiscal deficit.

The SDLs, along with the Central government securities are managed by the Reserve Bank of India. Each state has a prescribed limit for borrowing through state development loans.

These securities are auctioned by the RBI through e-kuber, a dedicated electronic auction system for government securities. The auction for SDLs is held every fortnight by the RBI.

The SDLs are long-term securities with a tenure ranging between 7 years to 30 years and offer a semi-annual interest payment.

Benefits of SDL Bond

SDLs provide great opportunities for investors to invest in the infrastructural growth and development of the Indian states.

Investors in SDLs

Major investors in state development loans are banks as they buy these dated securities to meet their SLR requirements, in addition to central government securities.

Mutual funds and insurance companies that have long-term debt funds, invest in these securities to get a slightly higher yield than central government bonds and pledge the SDLs for borrowing from the RBI under LAF.

SDLs are an important source of funding for state governments in India and provide several advantages to investors. SDLs provide a win-win situation for both the state government and investors by providing a safe investment option with attractive returns. It is a highly recommended investment option for individuals seeking a consistent return on investment as well as those wishing to contribute to the growth and development of their state.