Bharat Bond ETF more tax-efficient than bank FDs

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Published: January 29, 2020 2:35:33 AM

Investors taking the F-o-F route (exit load of 0.1% for 30 days) would be able to redeem directly with the mutual fund, with minimum redemption amounts as low as Rs 500.

The F-o-F route would entail an additional layer of charges in addition to the recurring expense of the underlying ETF.

Is it better to invest in Bharat debt ETF than investing in bank fixed deposit?
–Akash Agarwal

Bharat Bond Exchange Traded Fund is a basket of bonds issued by central PSUs or other government organisation bonds. It has a fixed maturity period (3 years and 10 years) and the units shall be listed on stock exchanges. It is an open-ended ETF and does not have a lock-in period. As the NFO period has elapsed, the minimum application and redemption amount is Rs 1 crore for authorised participants and Rs 25 crore for large investors. Retail investors can consider investing through the Bharat Bond Fund-of-Fund route which would invest in units of Bharat Bond ETF.

The F-o-F route would entail an additional layer of charges in addition to the recurring expense of the underlying ETF. Retail investors investing directly into the ETF with low ticket sizes, would only be able to liquidate their holdings by selling their listed units on stock exchanges. Investors taking the F-o-F route (exit load of 0.1% for 30 days) would be able to redeem directly with the mutual fund, with minimum redemption amounts as low as Rs 500.

Bharat Bond ETF maturing in April 2023 would be tracking the Nifty Bharat Bond Index – April 2023 which is currently yielding 6.69%; while the 10-yr Bharat Bond ETF would track an index currently yielding 7.58%. This is higher compared to the 6.25- 6.40% offered by 3 to 10-year FDs of leading public and private sector banks.
Bharat Bond ETF would be taxed similar to debt mutual funds. Long term capital gains on holding periods of 3 years and above would be taxed at 20% post indexation, which is more tax efficient option than a similar investment in FDs.Hence, the ETF is a better option for investors with investment horizon close to that of the ETF.

I invested Rs 20,000 in 2010 in infrastructure bonds. How do I redeem or get my money back?
—Pulkit Malhotra

Infrastructure bonds have a maturity period of 10-15 years with a lock-in period of five years. Investments qualify for tax deduction under Section 80CCF. The interest received is treated as income from any other source and forms a part of the total income of the assessee in the financial year in which they are received. As the lock-in period has elapsed, you may either surrender the bonds via the buy-back option on the specified dates, or you may sell the bonds on the secondary market. However, liquidity on offer in the secondary markets may be limited.

The writer is director, Investment Advisory, Morningstar Investment Adviser (India). Send your queries to
fepersonalfinance@expressindia.com

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