The Bharat Bond Exchange Traded Fund (ETF), which mobilised Rs 12,400 crore for central public sector enterprises (CPSEs) in its maiden issue in December, may come out with a tranche of Rs 3,000 crore in March, preferably a re-issuance of the10-year debt basket in the fund. The debt ETF, a move by the Centre to help the CPSEs mobilise a part of their annual borrowings in a cost-efficient manner, could have annual issuance calendars from FY21 onward, sources told FE.
There are two investment options in the CPSE debt ETF managed by Edelweiss — a short-term instrument for 3 years (Bharat Bond ETF April 2023) and a long-term one for 10 years (Bharat Bond ETF April 2030). On December 20, the ETF’s new fund offer (NFO) of Rs 7,000 crore was oversubscribed by nearly 1.8 times. The 3-year debt ETF received bids for Rs 6,982 crore, an over subscription of 2.3 times, and the 10-year category got Rs 5,413 crore, oversubscribed by 1.4 times. All the bids were accepted.
“Most likely, there will be a re-issuance of 2030 debt ETF in March,” an official said. To build trust and improve liquidity in the longer-tenure investment option, the re-issuance proceeds from the 2030 debt ETF is also likely to be invested in the same ISIN (international securities identification number) series bonds issued by the CPSEs, which will help increase liquidity in the product.
Bharat Bond ETF is an open-ended fixed maturity exchange traded bond fund that seeks to track the returns provided by Nifty BHARAT Bond Index. As on December 17, the index yield was 7.75% for the 2030 investment option, higher than the 6.7% for the 10-year G-sec. The yield was 6.83% for the 2023 option, against 6.36% for three-year G-secs. The debt ETF invests in high quality AAA-rated bonds of CPSEs and holds the bonds till their maturity and reinvests the coupons received. It invests 5% of its allocation in G-Secs to manage liquidity.
The department of investment and public asset management and Edelweiss would be deliberating with CPSEs to understand their requirement to plan an annual debt ETF issuance calendar, as debt ETF is a new concept for the Indian market.
The minimum investment amount (for retail investors) and unit price in the CPSE debt ETF is Rs 1,000. On Tuesday, Bharat Bond ETF 2030 NAV was Rs 1,001, down 0.16% from the previous close, while Bharat Bond 2023 NAV stood at Rs 1,001.99, down 0.03% from the previous close. As the investment is in fixed-income securities, short term capital gain (STCG) is taxed at the marginal rate of taxation and long term capital gain (LTCG) after three years is taxed at 20% post indexation benefit.
The debt ETFs would help the CPSEs, which together raise around Rs 1.5 lakh crore a year through bonds, to create a much wider investor base than they have through private placements. Currently, 99% of the quasi-sovereign CPSE bonds are privately placed with a limited pool of institutional investors, denying investment opportunities to retail buyers.