Bharat Bond ETF- the government’s first debt ETF -is set to open on December 12, 2019 for anchor investors and thereafter for other investors. The Bharat Bond ETF will have a base size of Rs 7,000 crore, with a green shoe option of additional Rs 8,000 crore. ETFs invest in a basket of securities representing an index, and are traded on the stock exchanges. Bharat Bond is an ETF with mandate to invest the amount collected in AAA rated Public Sector Bonds. It comes at a time when investors are shy of investing in corporate debt products like NCDs and Debt Mutual fund due to rating downgrade for some companies which has affected the yield from these instruments. It will provide retail investors easy and low-cost access to bond markets, with smaller amount as low as ₹1,000.
The Government of India through DIPAM approved the creation and launch of Debt ETF umbrella program referred to as ‘Bharat Bond ETF’. The Debt ETF shall comprise of Fixed Income Securities such as Bonds, Credit Linked Notes , Debentures, Promissory Notes, Government of India Bonds etc. as underlying instruments issued by participating CPSEs, CPSUs, CPFIs and other Government Organisations to help them meet their CAPEX & business needs. This will bring enhanced liquidity, enhanced investors base and transparency and smoothening of borrowing plans of the participating Contributors and will benefit both, the investors and the Contributors. Bharat Bond ETF is available in two tenures 1) 3 year + version ( matures on 17/4/2023) and 10 Year + version.
|Offer for Anchor Investors||12-Dec- 2019|
|Offer for non Anchor Investors||13 Dec – 20 Dec 2019|
|Particulars / types||Bharat Bond ETF 3 yr +||Bharat Bond ETF 10 yr+|
|Base Offer (Rs. Crore)||3000||4000|
|With Green Shoe Option (Rs. Cr)||5000||10000|
|Indicative Yield %p.a.||6.69||7.58|
Indicative Returns and Comparison
Bharat Bond ETF is tax efficient as after a minimum 3 year holding, the Taxation is 20% on the interest earned less the indexation benefits which could translate to an effective rate of 0-6% depending on inflation in the period. Traditional Small Saving or Bank FDs attract Taxes at marginal rates which in many cases is 30%+surcharge 4%.
Bharat Bond ETF: Salient Features:
- Retail Investors can invest minimum amount of Rs. 1,000 and in multiples of Rs. 1000 thereafter, subject to maximum investment amount of Rs. 2,00,000 (Rupees Two Lakhs Only).
- An FoF (Fund of Fund) version of CPSE ETF is also available. FoF will have both options of demat or physical
- The three-year Bharat Bond ETF will hold the debt of 13 public sector companies like National Highways Authority of India (NHAI), Indian Railway Finance Corporation (IRFC) and Power Grid Corporation of India etc.. The 10-year Bharat Bond ETF will hold the debt of 12 public sector companies such as Rural Electrification Corporation (REC), National Bank for Agriculture and Rural Development (NABARD) and Power Finance Corporation (PFC) etc. Only AAA-rated debt issued by the PSUs will be included in the two ETFs.
- ETF will have a fixed maturity date like a bond
- ETF maturities will be—April 2023 ( 3 year plus) and April 2030 (10 year plus)
- Bharat Bond ETF will closely mirror the Nifty BHARAT Bond Index
- ETF will hold bonds till their maturity and coupons received will be reinvested
- All categories of investors may transact in Units of the Scheme through the Stock Exchanges
- The AMC will appoint authorised Participant(s) who will endeavor to provide liquidity through Stock Exchanges by providing two-way quotes in the Units of the Scheme during trading hours.
- To maintain liquidity ETF will have 5% allocation towards G-Sec / CBLO.
- One can make investment in Bharat Bond ETF through the official website bharatbond.in
Bharat Bond ETF : Assessment
- Bharat Bond ETF is a reasonable option for investors seeking low risk, predictable return and a good level of liquidity
- The ETF will hold the bonds issued by CPSEs to maturity and hence investors will be able to lock in the yield to a considerable extent.
- The fund will be managed at a very low cost of 0.0005% p.a. (i,e. Re. 1 for Rs 2,00,000 of investments)
- The gains from the ETF held for over three years are taxed as long-term capital gains with indexation benefits, which reduce the incidence of tax, especially on the 10-year ETF. ETF scores over FD as interest income on fixed deposit is taxed at the marginal rate of tax.
- The Anchor portion of the Bharat Bond fund offer of Bharat Bond ETF was launched on 12/12/19 and the anchor book was subscribed by 1.7 times at Rs 2,980 crore.
- Bharat Bond ETF is a debt product and one should not expect any significant gain on listing.
- In general pre tax return from Bharat Bond ETF is expected to be lower than PPF, NSCs, Senior Citizen schemes.
- Bharat ETF is an attractive and novel instrument for those in high brackets as it combines safety, Liquidity, reasonable returns and some Tax benefits not seen in traditions FDs and small saving schemes.
- Bharat Bond ETF can be thought off like a fixed deposit wrapped in an ETF flavor where one can exit any time (no tax benefits if holding period is less than 3 years) with better Post Tax Returns.
- I intend to put some money in Bharat Bond ETF.
Standard disclaimer: I am not a SEBI registered analyst and above analysis is for educational purpose only. Iam a postgraduate in engineering and Management and have also passed NISM-Series-V-A: Mutual Fund Distributors Certification, NISM-Series-X-A: Investment Adviser (Level 1) Certification and NISM-Series-X-B: Investment Adviser (Level 2) Certification exainations. This post is my view on the subject matter and is only academic and exploratory in nature. It is not meant to influence investment decisions of investors. I may have bias/vested interest in the covered Stock/Mutual Funds/NCD products due to my own investment or leaning. Further my understanding of the areas on which I write may be imperfect or incomplete and data could be wrong due to limited time and resources at my disposal. Please do your own due diligence as stock market/MF investments have high degree of inherent risk.