Bharat Bond ETF the first of its kind in debt ETF in India is set to hit the market on 13th December and will be kept open till 20th December. On December 4th, Indian government launched the bond ETF to provide additional funds for public sector undertakings and to increase retail participation.
ETFs are passive funds that tracks an index. The benchmark index for Bharat Bond ETF will be Nifty Bharat Bond Index which was launched with two different maturities. The Nifty Bharat Bond Index series measures the performance of a portfolio of AAA rated bonds issued by government owned companies.
Before proceeding with the issue details of Bharat Bond ETF let us have a look at the benefits of Bharat Bond ETF and debt ETF in general for investors.
Benefits of debt ETF
- With the introduction of debt ETFs, investment in debt market is made easy for retail investors. They can now invest in debt instruments through ETFs just as they invest in equity stocks. Investors will have the flexibility to invest or trade in debt ETF during trading hours.
- As the ETFs are passive funds that requires less management, the cost is extremely low when compared to index mutual funds.
- Hassles of bond selection is removed. Generally it is very cumbersome for retail investors to make a selection of bonds to invest as it requires more expertise.
- Transparency is another benefit that investors in ETF enjoys. As ETF tracks an index, investors will be aware of the bonds or stocks to which they are exposed to while investing.
Also Read ETF vs Index Funds
Benefits and salient features of Bharat Bond ETF
- The foremost benefit of debt ETF is the safety. This acquires importance especially after the recent fiasco witnessed in Indian debt market with the default of private entities such as IL&FS and Dewan Housing. Nifty Bharat Bond Index comprises of high rated government bonds and this makes the investors in Bharat Bond ETF to have exposure to relatively safer debt instruments.
- Edelweiss, the manager to the Bharat Bond ETF issue has appointed market makers to ensure enough liquidity in the ETF. Market makers are authorized participants appointed by AMCs to buy and sell the ETF units to provide liquidity and maintain fair price at any given point of time.
- Interest rate risk is mitigated by holding the ETF till maturity. Bharat Bond ETF is issued with two variants viz., with maturity of 3 years till April 2023 and with maturity of 10 years till April 2030. The fixed maturity structure helps to lock-in the yields prevailing at the time of investment if it is held till maturity.
- When it comes to taxation, the sale of units of Bharat Bond ETF is treated at par with debt mutual funds. Sale after 3 years attracts long term capital gains tax @ 20% with indexation and sale before 3 years are taxed at slab rates.
- As per SEBI norms, a debt ETF should have minimum of 8 issuers. Three year Bharat Bond ETF holds debt of 13 PSUs and 10 year Bharat Bond ETF holds debt of 12 PSUs.
- The expense ratio of Bharat Bond ETF will be only 0.0005% which is the lowest among ETFs in India.
- During new fund offer (NFO) period one can invest as low as Rs.1000.
- After NFO period, the units are listed and traded on NSE and BSE and can be traded like shares.
How to invest in Bharat Bond ETF with Tradeplus
Tradeplus clients can participate in the new fund offer Bharat Bond ETF by logging in to www.mf.tradeplusonline.com. Steps to follow thereafter are:
- Sign in by using the option provided in drop down navigator as shown in below image.
- You can sign in either with your client code or by generating OTP through their registered mobile number.
- Search for the issue by typing the issue name at the search panel viz., “Bharat Bond ETF – April 2023” and select the issue you want to invest.
- Click on the option “Buy” at the right hand side of the page.
- Enter your investment amount at the space provided for and click “Start Investment”
- A pop up window will appear confirming your order placement with your order reference number.
- You can call support team at 044-39189467/ 89 or drop a mail to email@example.com mentioning your UCC, new fund offer name and the amount you wish to invest. You will receive a confirmation mail and SMS once the order is placed.
ETF is a fast growing investment vehicle that has attracted significant investment in equity ETF off late. With introduction of debt ETF, it paves way for increased participation of retail investors in debt segment also. However, there were concerns about existence of a well crafted index for debt ETF which is now taken care of by NSE through introduction of Nifty Bharat Bond Index. And liquidity is the only residual factor that has to takeoff with debt ETFs.