With an objective to strengthen the country’s corporate bond market and minimize the cost of borrowing, the central government approved the creation of Bharat Bond Exchange Traded Fund (ETF) in December 2019. Bharat Bond ETF is India’s first corporate bond that is being issued by various state-run companies and traded on exchanges.
What is Bharat Bond ETF?
Bharat Bond ETF is:
- a Government of India initiative for addressing the borrowing needs of certain government establishments
- managed by Edelweiss Asset Management
- an exchange-traded fund investing its corpus in bonds that are issued by:
- Central Public Sector Undertakings (CPSUs),
- Central Public Sector Enterprises (CPSEs),
- Central Public Finance Institutions (CPFIs) and
- other government establishments
- a fund investing only in bonds with AAA credit rating and maturity periods that are close to the fund’s maturity.
The ETF aims to pool investments from retail, HNI, and institutional investors.
Fund details – Bharat Bond ETF
The table below shows the key details that investors should know about Bharat Bond ETF:
| Fund house | Edelweiss Mutual Fund |
| Launch date | December 26, 2019 |
| Benchmark index | NIFTY Bharat Bond Index Series – April 2023 |
| Risk level | Low to moderate |
| Type of scheme | Open-ended |
| Expense ratio | 0.0005% |
| Minimum investment | Rs. 1,000 |
| Exit load | N/A |
| Fund managers | Dhawal DalalRahul Dedhia |
How to invest in Bharat Bond ETF
Here is how you can invest in Bharat Bond ETF:
Investors can choose between two maturity options:
- Short-term maturity period – 3 to 5 years
- Long-term maturity period – maximum 10 years
Any retail investor can subscribe to the Bharat Bond ETF by visiting the Edelweiss Mutual Fund website or by reaching out to their brokers for making an application.
While buying the ETF units, one will require a Demat account. Those who want to invest in the fund of funds (FoF) that the mutual fund will launch in relation to this ETF won’t need a Demat account.
Who can invest in Bharat Bond ETF?
Any Indian resident and NRI individuals and non-individual can invest in Bharat Bond ETF. Investors who have a Demat account can apply through their broking account.
Benefits of investing in Bharat Bond ETF
The key benefits to be availed from investing in Bharat Bond ETF are:
- Stable and predictable returns
- Low-cost investment mode to gain exposure to public sector bonds
- Higher liquidity
- High levels of transparency in relation to portfolio composition
- Taxation benefit due to investment focus in debt
Risks of investing in Bharat Bond ETF and how the fund aims to mitigate them?
Fixed-income securities pose four primary risks:
- Price risk
- Credit risk,
- Liquidity risk
- Reinvestment risk
Bond ETF aims to mitigate each of these risks as below:
- Price risk: Bharat bond ETF has a specific target maturity. Therefore, the yield from initial investments gets locked if the investment continues to maturity. The price risk, however, can continue if an investor withdraws or redeems before maturity.
- Credit risk: The fund invests only in bonds issued by Public Sector companies with a AAA credit rating. Therefore, it tries to curb the debt investment related credit risk.
- Liquidity risk: The fund house aims to use services of market makers to gain better liquidity on the exchanges. Thus, investors can buy/sell the ETF units on the stock exchange within trading hours.
- Reinvestment risk: Any coupons or interest receipts are reinvested by the fund in underlying assets similar to the Index or portfolio.
What are the objectives of setting up Bharat Bond ETF?
Increased retail participation
This ETF was launched to allow small investors to invest in a safer avenue with a fixed maturity date. It is expected to help in increasing the retail investor participation in bond markets, especially since they tend to stay away from the same due to liquidity and accessibility limitations.
Easy capital source for PSUs
The main objective is to allow public-sector companies to easily raise funds by issuing debt instruments and pushing for development in the domestic capital markets. It is slated to boost alternative funding sources for firms.
Diversification of investor base
With the establishment and launch of this umbrella ETF, the government aims to diversify the investor base. It aims to offer safety, liquidity and predictable tax-efficient returns to investors.
Conclusion
The ETF is planned to be launched every six months and the benchmark index is constructed by the National Stock Exchange (NSE). Through the Bharat Bond ETF, the central government aims to raise nearly Rs. 10,000 crores. With the first tranche alone, it managed to raise nearly Rs. 12,400 crores. Post this success, the second tranche was released in July 2020 and was subscribed more than three times to gather nearly Rs. 11,000 crores.
FAQs
ETFs or Exchange-traded funds are a basket of securities that can include bonds, stocks, money market instruments, etc., that tracks an underlying asset or index. ETFs combine different investment avenues into one and offer the unique characteristics of mutual funds and stocks.
BHARAT Bond ETF units can be traded on the exchange, allowing investors to buy or sell during market hours. These can be traded in a lot size of one unit and multiples thereof. Similar to stock transactions, these are settled on a T+2 basis.
Bharat Bond ETF does not have a lock-in period and investors can buy or sell the same on exchange at any time. Investors who wish to withdraw their investment from this fund can sell the units on the exchange. However, holding the investment until maturity can offer maximum benefits.
Yes, you can invest in Bharat Bond ETF through SIP after the NFO period of a new tranche.
The maximum investment amount permitted in Bharat Bond ETF is Rs. 2 lakhs.
