Bharat Bond ETF – How to Invest in Bharat Bond ETF ?

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:

1. Price risk
2. Credit risk,
3. Liquidity risk
4. 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

Related Links

• Swachh Bharat Abhiyan
• How to invest in bonds in India | A Complete Guide
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