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Bharat Bond ETF: Why to invest and who should invest?

Here are key things you must know before you decide to invest in this ETF.

, ETMarkets.com|
Updated: Dec 20, 2019, 12.01 PM IST
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The ETF will invest in a portfolio of AAA-rated bonds of public sector entities in two investment options for fixed maturity periods of three years and 10 years (2023 series and 2030 series).
Bharat Bond ETF, India’s first bond exchange-traded fund, opened for investment on Thursday. The ETF will invest in a portfolio of AAA-rated bonds of public sector entities in two investment options for fixed maturity periods of three years and 10 years (2023 series and 2030 series).

It is a target-maturity bond ETF, which will invest in underlying of similar maturities and track the newly-introduced Nifty Bharat Bond index.

Here are key things you must know before you decide to invest in this ETF:

  1. What will be tax implications?
    The bond ETF will be taxed as the same rate like debt mutual funds (20 per cent with indexation benefits, if held for more than three years), leading to an after-tax yield of around 6.3 per cent and 7 per cent for three years and 10 years, respectively. “Bharat Bond ETF would be a tax-efficient long-term investment option for conservative debt fund investors,” ICICIdirect.com said in a report.
  2. What’s in it for retail investors?
    The ETF is managed by Edelweiss AMC. It has also launched a ‘fund of fund’ (FoF) for this ETF to facilitate investment by retail investors just like a normal mutual fund. For retail investors, this FoF is better suited in terms of convenience and liquidity.
  3. Should you invest?
    A bond-like structure with fixed maturity provides predictable and stable returns at maturity, says ICICIdirect. It comes with higher safety, as the fund will invest only in public sector bonds, which are quasi-sovereign in nature. Daily disclosure of portfolio constituents and live net asset values would make it transparent. The expense ratio for the ETF will be very low compared with any other mutual fund product at just 0.0005 per cent.

    “Bharat Bond ETF is a greater opportunity to invest in debt at an affordable cost. This is a positive development as far as Indian debt market is concerned. Globally, ETF is very popular among investors, as if offers allocation to desired asset class at a low cost, giving greater control over fund manager’s underperformance,” said Tarun Birani, Founder and CEO, TBNG Capital Advisors.
  4. Which other product can it be compared with?
    The current structure of Bond ETF with a targeted maturity in 2023 and 2030 will make it a closest competition to fixed maturity plans and run-down maturity banking and PSU funds available as open-ended debt fund. The bond ETF offers far lower cost compared with debt mutual funds.
  5. What is the minimum investment required?
    Investors can put in a minimum Rs 1,000 in Bharat Bond ETF and in multiples of Rs 1,000 thereafter.
  6. Will it have any exit load?
    There will a 0.10 per cent exit load if the fund is redeemed or switched out on or before the completion of 30 days from the date of allotment. However, there will be NIL charge if redeemed/switched after the completion of 30 days from the date of allotment of units.
  7. What are Bharat Bond Index – April 2023 constituents?
    Bharat Bond ETF is a well-diversified basket of PSUs providing effective diversification.

    bharat bond table 1

    Bharat Bond Index – April 2030 constituents
    bharat bond table 2
  8. What are the other key features one should take note of?
    There will be a quarterly rebalancing of index constituents. Weights will be assigned based on the total outstanding amount of the respective bonds. Higher the outstanding, higher will be the weightage. The exposure to each bond would be restricted to 15 per cent of the index as per the Sebi regulation. Bharat Bond fund of funds is launched for investors who do not have demat accounts.
  9. What kind of yield can one expect?
    The current yield of the three-year underlying index is around 6.7 per cent, while for the 10-year index, it is 7.6 per cent.
  10. How to invest?
    Investors holding demat account can invest in Bharat Bond ETF. Investors who do not hold a demat account have an alternative option to invest via Bharat Bond Fund of Funds having similar maturity in line with the underlying ETF. You can get the form for the NFO at www.BharatBond.in and submit it to any of the branches of Edelweiss. The ETF is tentatively expected to list on the bourses by December 31.

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