What is Bharat bond ETF?
In a move aimed at strengthening the corporate bond market and reducing the cost of borrowing the government approved the creation of Bharat Bond Exchange Traded Fund (ETF) on December 4, 2019. This is India’s first corporate bond, issued by state-run companies.
Bharat Bond Exchange Traded Fund is a mutual fund that invests your money in the bonds issued by the Government of India owned companies as well as corporate unit bonds. It is a diversified fund that consists of various public sector company bonds.
Key Features
The ETF is listed on NSE. This fund invests your money in public sector bonds (PSU). All are AAA rated PSU bonds.
The fund has a low expense ratio of 0.0005%
It tracks NIFTY Bharat bond ETF index.
It holds the bond till maturity and re invest the coupons received.
Bharat bond ETF has fixed maturity period.
Daily disclosure of portfolio constituents and NAV.
Long term capital gain holding period of 3 years and above will be taxed at 20% after indexation
Asset allocation
95%- AAA rated public sector undertaking
5% – allocation towards G-Sec/TREPS/Repo Instruments to manage liquidity
Pre defined maturity date
Bharat Bond ETFs provide a certain maturity date to unit holders. Thus, defined maturity ETFs enable investors to create customized portfolios that address projected cash flow needs and precisely manage interest rate risk.
Diversification
Bharat Bond ETFs offer exposure to a wide variety of individual bonds from multiple issuers, reducing issuer concentration risk and limiting the exposure to AAA bonds issued by public sector companies reduces the credit risk by a great extent.
Transparency and liquidity
Bharat Bond ETFs offer daily holdings disclosure as well as the real-time pricing, intra-day trading, and liquidity on exchange as well as through AMC. When trading these ETFs in secondary market, one must look for the liquidity available.
Yield to maturity
YTM is going to different for varying prices. The prices of the ETFs are higher compare to the initial prices, which means the yield is lesser as well. The calculation of YTM is not available on all trading platforms.
Lower cost
Expense ratio of this ETF is lower than those of actively managed mutual funds. The fund managers do not have to put effort into daily buy and sell. It follows an index, making it cost effective.
Bharat Bond ETF Series 1
Edelweiss AMC came up with the first series in December’2019. The ETFs received an enthusiastic response. Both investment options of ETFs (2023 and 2030 series) got oversubscribed. The government exercised the greenshoe option and retained the excess subscription of both the tenures. Current portfolio yield of 2023 and 2030 series are 4.79% and 6.85% respectively.
Bharat Bond ETF Series 2
The second series of Bharat Bond ETF was launched on July’2020. The two new series have maturities of April 2025 and April 2031. It was oversubscribed over three times. Greenshoe option was exercised. Current portfolio yield of 2025 and 2031 series are 5.78% and 6.8%.
Conclusion
Bharat Bond ETF is a unique fund launched by the government with low expense ratio. The investment in this fund is safe as underlying bonds are issued by the government-owned companies. This fund provides tax-efficient returns and it can be traded on the exchange easily. Bharat Bond ETF is a very good investment option for conservative investors. If you are planning to invest in the fixed deposit you should look at this fund for the investment. However, it has fixed maturity and it’s prone to interest rate change risk. If you are a low-risk investor, you can allocate a small portion to this fund.
