Finance Minister recently announced that India would launch its first-ever “Bharat Bond ETF” The bond ETF is a new move to develop an underdeveloped bond market in India. It will ultimately give a boost to debt availability to the PSUs (Public Sector Enterprises). The Cabinet Committee on Economic Affairs, chaired by the Prime Minister of India, has approved the Government’s plan to create and launch India’s first corporate bond
Exchange-Traded Fund (ETF)
- 1 BHARAT Bond ETF
- 1.1 What is BHARAT Bond ETF?
- 1.2 How BHARAT Bond ETF works ?
- 1.3 Where can BHARAT Bond ETF invest?
- 1.4 How can I Apply for the BHARAT Bond ETF ? / How can i invest in BHARAT Bond ETF ?
- 1.5 Who can invest in BHARAT Bond ETF?
- 1.6 How safe is to invest in Bharat Bond ?
- 1.7 What are the Advantages of BHARAT Bond vs other debt MF and Bonds?
- 1.8 comparison of Bharat Bond ETF with other investment plans
- 1.9 what are the risk associated with investing in Bharat Bond ETF ?
- 1.10 What is the minimum amount for invest in BHARAT Bond ETF?
- 1.11 What are the documents required to invest in the BHARAT Bond ETF ?
- 1.12 Exchange-Traded Fund (ETF) :-
- 1.13 What are Bond ETFs?
BHARAT Bond ETF
Bharat Bond ETF is an open-ended Target Maturity Exchange Traded Bond Fund that seeks to track the returns provided by Nifty BHARAT Bond Index. A target maturity fund has a maturity date just like Fixed maturity plan. In these ETF’s the underlying securities are held until they maturity of the Scheme.
The investment objective of the Scheme is to to replicate Nifty BHARAT Bond Index – April 2023 and Nifty BHARAT Bond Index – April 2030, subject to tracking errors. It will track the Nifty Bharat Bond index, underlying securities on a risk replication basis, matching credit quality and average maturity of the index.
What is BHARAT Bond ETF?
B.B ETF is an Initiative by the Government of India to cater to the borrowing requirements of CPSEs by pooling investments from retail, HNI and institutional investors. Edelweiss Asset Management has been given the mandate to manage this BOND ETF program.
How BHARAT Bond ETF works ?
What is the Product Composition of BHARAT Bond ETF?
BHARAT Bond Exchange Traded Fund is a low-cost basket of CPSE bonds that follows an index and trades on the stock exchange. The ETF would follow the underlying index which will comprise eligible bonds issued by CPSEs, CPSUs/CPFIs and other Government organizations. ETF and indices will have a specific maturity date. For instance, BHARAT Bond ETF -April 2023 and the underlying index both will mature in April 2023.
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Where can BHARAT Bond ETF invest?
The ETF can invest only in high quality “AAA” rated bonds of CPSEs/CPSUs/CPFIs and other Government organizations.
How can I Apply for the BHARAT Bond ETF ? / How can i invest in BHARAT Bond ETF ?
Applying is very simple. For ETF schemes, the Investor can directly apply to AMC by filling Application form and providing Demat and Client ID. Investor can also place the order through respective broker. Demat account is mandatory for investing in BHARAT Bond ETF.
For FoF schemes, the Investor can directly apply to AMC by filling Application form like any other mutual fund.
Individual investors can also invest through various apps and websites
you can also invest in B.B. ETF on their website and app
Who can invest in BHARAT Bond ETF?
Any resident (including NRIs) individual and non-individual can invest in BHARAT Bond ETF. If you already have a Demat account, you can apply through your broking account
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How safe is to invest in Bharat Bond ?
B.B. ETF will invest only in the bonds issued by the Government of India’s Public Sector Companies. Even within these companies, it will invest only in those bonds, which has a credit rating of AAA. Such bonds have minimal default risk.
What are the Advantages of BHARAT Bond vs other debt MF and Bonds?
BB ETF provides the following benefits
- Easy and low-cost access to CPSE Bonds
- Better liquidity than Bonds b
- Better transparency than Bonds and MFs
- Predictability of return
- tax efficiency compared to Bonds as coupons from the Bonds are taxed at marginal rates. Bond ETFs are taxedwith the benefit of indexation which significantly reduces the tax on return for investor.
comparison of Bharat Bond ETF with other investment plans
Following table shows a comparison of Bharat Bond ETF with other investment plans
what are the risk associated with investing in Bharat Bond ETF ?
Investing in any fixed-income securities has four major risks- Price risk, Credit Risk, Reinvestment Risk and Liquidity Risk. The ETF aims to mitigate these risks in the following manner:
- Price Risk: The ETF has a target maturity. This means the initial yield is locked if the investment is continued till maturity. However, if you withdraw/redeem before maturity, price risk will remain.
- Credit Risk: Each bond issuer is a Public Sector Company with a credit rating of AAA. Credit risk, therefore, is relatively lower.
- Reinvestment Risk: Coupons/interest received by the fund shall be reinvested in the similar underlying assets as that of the Index/portfolio.
- Liquidity Risk: The AMC will appoint market makers to provide liquidity on the exchanges. Hence, investors can buy/sell their units on exchange anytime during the trading hours.
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What is the Settlement Period for BHARAT bond ETF ?
Subscription: If funds are credited in the bank account up to 3:00 PM, units will be allotted with end of day NAV and if the credit is post 3:00 PM, next business days’ end of day NAV will be applicable for allotment of units.
Redemption: On Exchange: T+2 basis & Direct with AMC: T+1 basis
What is the minimum amount for invest in BHARAT Bond ETF?
Anchor Investors: Anchor Investors can invest with the minimum application amount of Rs. 10,00,00,000 (Rupees Ten Crores only) and in multiples of Rs.1000 thereafter.
Retail Individual Investors: Investors in this category can invest with the minimum investment amount of Rs. 1,000 and in multiples of Rs. 1000 thereafter, subject to the maximum investment amount of Rs. 2,00,000 (Rupees Two Lakhs Only).
Retirement Funds: Investors in this category can invest with a minimum investment amount of Rs. 201,000 (Rupees Two Lakhs and One Thousand Only) and in multiples of Rs. 1000 thereafter.
QIBs: Investors in this category can invest with a minimum investment amount of Rs. 201,000 (Rupees Two Lakhs and One Thousand Only) and in multiples of Rs. 1000 thereafter.
For investing in Bharat Bond ETF Is SIP/STP/SWP allowed ?
SIP/STP/SWP all will be allowed in BHARAT Bond FOF post NFO period only.
What is the minimum investment amount in BHARAT Bond FOF?
The minimum investment amount in the fund is Rs.1,000/- and multiples of Re. 1/- thereafter.
. What are the modes of payment for investment in BHARAT Bond ETF ?
Physical Cheque, RTGS/NEFT/IMPS, Net Banking
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What are the documents required to invest in the BHARAT Bond ETF ?
What will be the applicable Tax for BHARAT Bond ETF ?
As BHARAT Fund ETF will be investing in Fixed Income securities, Debt Taxation will be applicable to investors.
Short Term capital Gain (STCG) is taxed at marginal rate and Long Term Capital Gain (LTCG) after 3 years is taxed 20% post Indexation Benefit.
Are there any assured returns For BHARAT Bond ETF ?
There are ‘NO’ assured returns. During the investment period, value of investments can go up or down depending on market conditions and are dependent on interest rates movements in the economy. However, if investors stay invested till maturity of the ETF then return can be inline with the yield of the portfolio at the time of investments.
here you can find more information about BB ETF on BSE
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Exchange-Traded Fund (ETF) :-
What Are ETFs?
Exchange Traded Funds are type of mutual funds which are listed and traded on exchange. These ETFs track an underlying index and are passively managed. here you can learn more abut ETF
What are Bond ETFs?
Bond ETFs invest in Bonds and are listed on exchange. These Funds are passively managed Funds which follow a specific Index. Similar to other Mutual Fund, investors get units of ETFs which are listed and trade on the Exchange. Investors can buy or sell units of ETF on the exchange any time during the market hours.
What is Target Maturity Bond ETF?
A Target Maturity Bond ETF is an exchange traded fund which has a defined fixed maturity that invests in bonds with similar maturity. This enables it to combine features of bond and mutual funds both. In these ETF’s the underlying securities are held until they maturity of the Scheme.
There is only one shortfall and that is for the investors expecting high returns. The bonds do not have as good returns as stocks. Though the returns are better than fixed deposits currently, they are not in competition to stocks.
However, for those thinking of diversifying a portfolio with a better balance between debt and equity, the time has come.
India’s bond market is very underdeveloped, and hence, industries have no option but to depend on banks for loans. This increases interest rates for other consumers. A developed bond market will help enterprises move to the public for investments, and more capital will be available to banks offering cheaper loans.
Irrespective of the success, this step of the Bharat Bond ETF will be historic because it calls for the development of the bond market.