Bharat Bond ETF is India’s first and only bond ETF or Bond Exchange Traded Fund. The money is invested in Public Sector Bonds of reputed Organizations. Bharat Bond has a fixed maturity date where you get the invested amount along with returns. You can easily sell Bharat Bond ETF units on the stock exchange, during the tenure of the fund.
These are passive funds which invest in constituents of an underlying index. These funds are traded on an exchange at a lower cost than actively managed debt funds. They track an index and are very transparent. Bharat Bond is very safe as investments are in Government Organizations of AAA credit rating. There is no lock-in and you can buy/sell units just like shares.
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Bharat Bond offers high safety as the investment is in public sector bonds. There is daily disclosure of portfolio constituents and NAV which makes it very transparent. The expense ratio of the Bharat Bond ETF is very low at just 0.0005%.
Bharat Bond gives you a great opportunity to invest in debt at a very affordable cost. It also helps that this is an ETF that is popular among investors. You enjoy allocation to the desired asset class at a very low cost. You can invest a minimum amount of just Rs 1,000 in Bharat Bond. There are no charges if units are redeemed or switched after 30 days from the allotment date of units. There are two variants of Bharat Bond ETF which mature in April 2023 and April 2030. Bharat Bond is managed by Edelweiss AMC which has also launched a ‘fund of the fund’ for easy investment by retail investors. The FoF is just like a normal mutual fund in terms of liquidity and convenience.
Bharat Bond ETFs are a well-diversified basket of PSUs. Let’s take a look at the Bharat Bond ETF portfolio.
Bharat Bond ETF is a great way to invest in debt at a very affordable cost.
Well, the Nifty Bharat Bond Index – April 2023 which is short term (3+ years), offers 6.69%. The long term (10+ years) Nifty Bharat Bond Index – April 2030 offers 7.58%. These are pre-tax returns.
You can earn a post-tax return of 6.31% in the 3-year ETF and 6.99% in the 10-year ETF. (Assume 4% inflation and indexation benefits). These returns are higher than fixed deposits. Edelweiss Mutual Fund manages Bharat Bond ETF. You get the returns projected by Edelweiss, only if Bharat Bond ETF is held till maturity.
Investing in fixed income securities has four major risks.
Price Risk: This is the maturity risk or the risk that you don’t hold the investment till maturity. If you redeem the investment before maturity, there is price risk.
Credit Risk: Bharat Bond invests in AAA rated government securities. So, default risk or credit risk is minimum.
Reinvestment Risk: Interest received by the fund is reinvested in similar underlying assets. This reduces reinvestment risk.
Liquidity Risk: You can buy and sell units on the stock exchange. This means a high level of liquidity.
If you have a demat account, you can invest in Bharat Bond ETF. Even if you don’t have a Demat account, you can invest through Bharat Bond Fund of Funds which has similar maturity as underlying index. (Fund of funds is a mutual fund which invests in another mutual fund). You can log on to bharatbond.in and click on Offer Period – 12th December 2019 – 20th December 2019. You will have to fill the investment amount, Investment Horizon of 3 years or 10 years and Mode of Investment as ETF (Demat Account Required) or FOF where demat account is not required. You then fill PAN, email ID and mobile number and click on verify my PAN. Complete the KYC details and make the investment. You can download the form, fill it up and submit at Edelweiss Branches. The ETF would list on December 31st 2019.
The Bharat Bond is taxed just like debt fund. If held for less than 3 years, returns are added to taxable income and taxed as per income tax slab. If held for more than 3 years, the returns are taxed at 20% with indexation benefits. This makes it tax-efficient for long-term investors.
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