The NFO of the Bharat Bond ETF witnessed energetic retail participation, being oversubscribed 1.8 times. The units can be bought or sold on the stock exchange post the NFO.
Recessionary undercurrents and uneasy markets are pushing investors towards more secure, liquid investment options. The launch of the Bharat Bond Exchange Traded Fund (ETF) offers one such fixed income investment option, a first-of-its-kind in the Indian market.
The New Fund Offer (NFO) of the Bharat Bond ETF witnessed energetic retail participation, with the fund NFO being oversubscribed 1.8 times. Being an ETF, the units can be bought or sold on the stock exchange post the NFO.
So, before you whip out your cheque book, here’s what you need to know about this fund.
Decoding the essentials of Bharat Bond ETF
Managed by Edelweiss AMC, the Bharat Bond ETF will be tracking the newly-introduced Nifty Bharat Bond index comprising of debt securities of various Public Sector Units (PSUs) having the highest credit rating. One can invest in the fund with as little as Rs 1000.
Bharat bond ETFs will invest in AAA rated bonds of PSUs maturing on or before the maturity date of the ETFs. This means the ETFs will hold the bonds till the maturity date. Any associated coupons received from the invested bonds will also be reinvested in the ETF.
Edelweiss AMC charges an expense ratio of 0.0005% for managing the fund, making it one of the cheapest funds in India. The fund comes with 0.10% exit load if redeemed on or before 30 days of investment. There is no exit load for redemptions made thereafter.
Holding period and liquidity
Just like Fixed Maturity Plans, Bharat Bond ETFs come with two plans: a 3-year maturity period and a 10-year one. The 3-year fund comprises of bonds of 13 PSUs with an April 2023 maturity date. The 10-year fund constitutes bonds of 13 PSUs maturing in April 2030.
Being an exchange traded fund, Bharat Bond ETF scores high on the liquidity front. As the units are listed on stock exchange including both NIFTY and BSE, investors can buy or sell units as desired.
On the downside, however, the prices at which ETFs trade in the financial markets are usually different from the fund’s Net Asset Value (NAV). This can lead to a situation where investors may buy at prices higher than the existing NAVs or sell as prices lower than the NAV as per market fluctuations.
Risk, return, and taxation
With investments being made in AAA bonds of PSUs, chances of default are very low, making it a good bet for even conservative investors. Investing in the bond at NFO and holding the investment for the entire holding period offers an annualized post-tax yield of 6.3% for ETF maturing in 2023 and 7% for ETF maturing in 2030.
Being an exchange traded fund, any redemption made before the holding period ends will depend on the prevalent market scenario as per the NAV on the day.
Investments made in Bharat bond ETF will be taxed similar to debt funds. This means one will be liable for taxation at 20% with indexation benefits for holding the fund over 3 years wherein the returns will be deemed Long Term Capital Gains. If held for less than 3 years, the returns will considered as Short Term Capital Gains and will be added to the income to be taxed as per the relevant Income Tax slab.
The Bharat Bond ETF can be a good investment bet for those seeking a low risk investment option with stable returns, good taxation benefits, and decent liquidity levels. Weigh the ETF’s advantages and shortfalls before taking an investment decision.
(By Hemanth Gorur, Co-founder, Hermoneytalks.com, and Managing Partner, Hubwords Media)