Bond ETFs are here. The government has cleared the launch of India’s first debt ETF, called Bharat Bond ETF, to deepen the bond market and allow retail investors an opportunity to participate in it. The product was unveiled after two years of deliberations between the Government of India and various other stakeholders.
Key highlights on Bharat Bond ETF:
What does it look like?
Bharat Bond ETFs will have defined maturity, meaning they will mature within a fixed term. Like close-ended mutual funds, the units will be listed on stock exchanges. The unit value of the Bharat Bond ETF will be capped at Rs 1,000. The scheme will offer two options, one maturing in three years (by 2023) and the other in 10 years (by 2030). It will offer only growth option and no dividend option.
What are return prospects?
ETF to let you participate in India’s economic growth with lesser risk. You can invest in bond ETF for assured returns, which will be better than bank FDs. You can also invest for short term, 3 years, or long term, 10 years. You can invest in these ETFs with a minimum of Rs 1,000. Going by benchmark performance, these ETFs are projected to deliver 50-140 basis points more return that 10-year govt bonds.
What will be cost of such exposure?
Bharat Bond ETF will be the cheapest mutual fund or ETF scheme in India and probably the most inexpensive ETF globally. It will hold high-quality AAA- and AA-rated securities of PSUs to ensure investor safety. The ETF will be listed on stock exchanges to allow ready liquidity.
Shape of Bharat Bond ETF
Edelweiss AMC, which will manage Bharat Bond ETF, will roll out 2 tranches every year. You can invest in these ETFs with a minimum of Rs 1,000. These funds will offer only growth option, and no dividend option. You can invest for short term, 3 years, or long term, 10 years.
Who will Bharat Bond ETF cater to?
Bharat Bond ETF will provide money for CPSUs, CPSEs and other government organisations. The ETF will hold a basket of bonds issued by CPSE/CPSU/CPFI or any govt organisations. The ETF will loosely resemble a fixed maturity plan.
What are the global standards?
Debt ETFs hold a collection of corporate debt papers of various maturity duration. As one series of bonds mature, other debt papers of a same or similar credit quality and maturity are placed in the basket. Thus a debt ETF, like an equity ETF, becomes a perennial investment option. In developed markets, debt ETFs are widely held by pension funds, endowments and retirement corpuses.