Pension funds to soon be able to invest in sovereign green bonds: What it means for you

The decision by the PFRDA to allow funds to invest in sovereign green bonds holds significant implications for retail investors.

"By including these environmentally conscious debt instruments in their investment portfolios, pension funds can achieve diversification, spreading risk across various asset classes and promoting sustainable investments aligned with environmental, social, and governance (ESG) principles," Abhijit Roy, CEO at GoldenPi, an online bond marketplace said.

Retail investors, who are increasingly conscious of the environmental impact of their investments, can now align their pension contributions with their values, supporting projects that promote sustainability, renewable energy and environmental protection.

With sovereign green bonds typically issued with longer maturities, Roy said that they offer stability and long-term returns, making them suitable for retail investors' pension needs.

"The inclusion of these bonds in pension funds reflects the growing global trend of focusing on sustainable development and climate change mitigation, providing investors with opportunities to contribute to environmentally responsible initiatives. Moreover, this can raise awareness among retail investors about sustainable investing, encouraging a more informed and socially responsible approach to financial decision-making. As retail investors venture into this space, they may benefit from reduced market volatility, as sovereign green bonds are considered relatively safe investments with government backing," he told CNBC-TV18.com.