Bharat Bond ETF: Second tranche to open on July 14

The Government has on Friday launched second tranche of BHARAT Bond Exchange Traded Fund (ETF) in July. One can invest at face value of Rs 1,000 in second tranche between July 14 and July 17.

With second tranche, the investors have the option in participating in four maturity series: 2023, 2025, 2030 and 2031. ETFs maturing in 2023 and 2030 was launched last December while 2025 (5 years) and 2031 (11 years) series are being launched. Based on NAV (Net Asset Value) on July 2, BHARAT Bond ETF 2023 has given return of 5.17 per cent with NAV of Rs 1,070.89. For BHARAT Bond ETF 2030, return was 6.69 per cent with NAV of Rs 1,088.45. Now, indicative yields of new ETF maturing in April, 2025 and in April, 2031 are 5.68 per cent and 6.75 per cent respectively.

The ETF is a basket of debt papers of Central Public Sector Undertakings (CPSUs), Central Public Sector Enterprises (CPSEs), Central Public Financial Institutions (CPFIs) or bonds of any other government organisation. As of now, all bonds are ‘AAA’ rated, which implies highest security. The Government expects retail investors, who were making meagre returns on fixed deposits and small-savings instruments, can benefit from ETF either through fixed interest rate or taking advantage of stock exchange platform for buy or sell.

Each ETF has a fixed maturity date. It tracks the underlying index on a risk replication basis, that is, matching credit quality and average maturity of the index. Each series of ETF has a separate index of the same maturity series. The index has been constructed by the NSE. The Bond ETF will be taxable with the benefit of indexation, significantly reducing the tax on capital gains for investor. this fund is its low cost of management — 0.0005 per cent of the value of assets as against 1-1.5 per cent in other cases. This will have a positive impact on the NAV

Launching the second tranche, DIPAM (Department of Investment and Public Asset Management) Secretary Tuhin Kanta Pandey said interest in ETF is building up as cost of borrow​ing for participating CPSUs. CPSEs and CPFIs have come down by 13 basis points (through 3 years one) to 20 basis points (through 10 years ones). Investors have benefitted too as Chairman and CEO of Edelweiss Group said after tax return on these ETFs are up to 2 per cent higher than Banks’ fixed deposit. These ETFs can be bound and sold just like a share on stock exchange and as on date average daily trading volume is between Rs 2.5-3 crore.

The Government expects to get up to Rs 14,000 crore from second tranche. Out of total issue, 25 per cent is reserve for small investors (one with maximum investment amount of Rs. 2 lakhs)  while remaining can be availed by High Networth Individuals and institutions such as EPFO and Pension Funds. Total mobilisation under first tranche was Rs 12,400 crore.

One should have demat account to participate in ETF. However, if one does not have, then he/she can participate through Fund of Funds (FoF). Both have similar features.

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