The Government has approved the launch of the Bharat Bond ETF. This is India’s first corporate bond exchange-traded fund or ETF. Bharat Bond ETF comprises a debt of state-run companies that allows retail investors to buy Government Bonds.
The Exchange Traded Fund or ETF invests your money in a basket of securities that track a particular index. ETFs are just like mutual funds but can be bought and sold on stock exchanges like NSE or BSE, just like stocks.
The bond ETF would invest in a basket of bonds in the underlying index. This could be Corporate, Government or PSU Bonds.
Investment is in bonds of AAA-rated Government Companies. Bharat Bond ETF will have a fixed maturity date and low-interest rate risk. This is the cheapest mutual fund product in India, managed by Edelweiss Mutual Fund. The ETF charges 0.0005%. Bharat Bond ETF has two defined maturities: 3 and 10 years. Bharat Bond ETF has a fixed maturity date and after maturity, you get back investment proceeds with returns.
See Also: Invest In Short Term Debt Funds
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The first series holds AAA-rated bonds of Government-owned Companies. The top 3 holdings of the 3-year series scheme are NABARD, REC and Power Grid. The top 3 holdings of the 10-year series scheme are NHAI, IRFC, and REC. The first scheme matures in April 2023 and the other scheme matures in April 2030.
The Bharat bond ETF invests in AAA-rated bonds of Government-owned Companies. This means low credit or default risk as these bonds are extremely safe. Bharat bond ETF has a very low cost of just 0.0005%. It has a fixed maturity date, low-interest rate risk and offers predictable returns if it’s held till maturity. Units are liquid as Bharat bond ETF is listed on the Stock Exchange. If you are a big investor, you can buy and sell units directly with the fund house.
The ETF has a fixed maturity date. The bonds are held till maturity and interest are reinvested. You need a Demat account to invest in Bharat bond ETF. The unit value is capped at Rs 1,000. There will only be a growth option, but no dividend option.
See Also: Taxation of Debt Funds
Bharat bond ETF allows you to participate in India’s economic growth story with low risk. You have the option to invest in the short term (This is 3 years) or the long term (This is 10 years). You enjoy assured returns higher than fixed deposits. You can invest with just Rs 1,000. The Bharat bond ETF can offer returns which are 50 to 140 basis points above 10-year government bonds. The current 10-year government bond yield is 6.67%. This is more than FDs.
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