Bharat Bond ETF kicks off this week; check date, investment, return, taxation, other details

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Published: December 9, 2019 1:18:50 PM

India’s first PSU corporate bond ETF issue-- Bharat Bond ETF --will kick off for subscription on December 12. We take a look at key details.

The government on Monday said that Bharat Bond has received SEBI’s approval.

India’s first PSU corporate bond ETF issue– Bharat Bond ETF –will kick off for subscription on December 12. The government on Monday said that the public offer has received SEBI’s approval. The issue will remain open for subscription till December 20th. The offer size for the issue is likely to be Rs 7,000 crore, with a green-shoe option of Rs 8,000 crore. The ETF will invest in 3-year and 10-year government securities. NABARD, HUDCO, NHAI, PFC, REC, PGCIL, IRFC, NHPC, NTPC will be the firms borrowing through Bharat Bond ETF. Through this public offer, retail investors will have an opportunity to invest in quality PSU debt for as low as Rs 1,000. “We are giving the retail investor an option to earn more than the fixed deposit rate, and also participate in the development of the country. Bharat bond ETF will be the first corporate bond ETF in the country,” FM Nirmala Sitharaman said in a press briefing last week.

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The FM explained that each bond ETF will be priced at Rs 1,000 per unit. Retail investors can invest with the minimum investment 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). Notably, the weight of bonds in the index will be based on total outstanding amount of each issuer. Single issuer weight will capped at 15%, Edelweiss AMC, which is managing the issue said in a FAQ guide. The bond ETF will also be listed on the exchanges. Accordingly, investors can buy or sell shares using three methods– via stock exchange, through the market makers or directly through the AMC. The Bharat Bond ETF will have a transparent NAV (periodic LIVE NAV during the day). Bharat Bond ETF will have a fixed maturity period, like close-ended mutual funds and the units will be also be listed on stock exchanges.

Notably, there are ‘NO’ assured returns for Bharat Bond ETF. “During the investment period, value of investments can go up or down depending on market conditions, and are dependent on interest rates movements in the economy. However, if investors stay invested till maturity of the ETF then return can be inline with the yield of the portfolio at the time of investments,” Edelweiss AMC explained. According to Zerodha, the yield would be around 7%.

Explaining the tax implications of investing Bharat Bond ETF, Edelweiss AMC said that as it will be investing in Fixed Income securities, Debt Taxation will be applicable to investors. Accordingly, investors should brace for Short Term capital Gain (STCG) taxed at marginal rate and Long Term Capital Gain (LTCG) for redemption after 3 years, which are taxed 20% post Indexation Benefit. The ETF will have a very low cost (0.0005%) expense ratio.

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