The product has been crafted to cater to both wholesale investors — pension funds, insurance companies and provident funds — and retail investors.
The Bharat Bond Exchange Traded Fund (ETF), a basket of bonds issued by government-owned enterprises, could see collections to the tune of Rs 10,000 crore, market experts said. The product has been crafted to cater to both wholesale investors — pension funds, insurance companies and provident funds — and retail investors.
The returns on the 3-year ETF are expected to be in the range of 6.5-6.6% while that on the 10-year ETF could be approximately 7.5%-8%. The bonds will be available for two maturities — three years and 10 years. The first tranche will comprise AAA-rated bonds.
“Since insurance companies and provident funds are looking for long-term assets, this product would suit them,” A Balasubramanian, MD&CEO, Aditya Birla Sunlife AMC, said, pointing out that ETF limits are typically outside the underlying bond limit in any scheme. The appetite from mutual funds may not be very strong, he said.
Given the minimum deno-mination for investments is Rs 1,000, and that the bonds are backed by the government, retail investors are expected to buy the ETF especially the shorter-maturity product. “Typically retail investors are unwilling to commit money for a long period like 10 years,” market experts said.
Finance minister Nirmala Sitharaman said on Wednesday investors can buy or sell the ETFs either on the exchanges, through market makers or through the AMC. Investors who sell ETFs will be eligible for indexation benefits while paying capital gains tax.