The second tranche of the Bharat Bond exchange traded fund (ETF) with two more new ETFs maturing in 2025 and 2031 referred to as Bharat Bond ETF April 2025 and Bharat Bond ETF 2031 is will be up for subscription from July 14, 2020.
The indicative yield of the five-year Bharat Bond ETF April 2025 is 5.6% and that of the 11-Year April 2031 version is 6.7%. The bond ETF will enjoy tax advantage in the form of indexation benefit similar to debt mutual funds (20% with indexation). While the actual tax implication depends on future inflation index, tentative after tax yield could be ~5.0% for five-year ETF and 6.2% for 11-Year ETF.
Bharat Bond ETFs provide a higher degree of certainty of returns (if held-to maturity) with a higher safety of capital as it invests in government owned AAA rated public sector bonds. With the current prevailing low interest rate regime that is likely to continue, a small allocation could be considered by investors looking to lock in safe and predictable returns. In the current environment, the 11-year ETF is better placed as it offers higher and safe return for longer period. The yield on five-year ETF is lower and investors may instead prefer open end good quality debt mutual funds.
The Government of India intends to raise up to | 14000 crore through this ETF. In its first trance, it raised around | 12400 crore.
Why should you invest?
Stability and predictability of returns. Bharat Bond with fixed maturity provides predictable and stable returns at maturity
High safety: Investment in public sector bonds
Transparency: Daily disclosure of portfolio constituents and live NAV
Liquidity: Buy/sell on exchange any time or through AMC in specific basket size.
Edelweiss AMC which is managing this ETF has also come out with a Bharat Bond Fund of Fund. It enables retail investors to enter and exit just like mutual funds
Tax efficient: Tax efficient compared to traditional investment avenues. Taxed at only 20% post indexation, excluding surcharge
Low cost: The expense ratio of the ETF is only 0.0005%
Following are the Constituents of 5year bond, with rating and likely % exposure
1 POWER FINANCE CORP. LTD. AAA 15.00 %
2 REC Ltd. AAA 15.00 %
3 POWER GRID CORP. OF INDIA LTD. AAA 15.00 %
4 NATIONAL HOUSING BANK AAA 10.51 %
5 INDIAN OIL CORP.LTD AAA 8.58%
6NATIONAL BANK FOR AGRICULTURE & RURAL DEVELOPMENT AAA 8.02%
7 HINDUSTAN PETROLEUM CORP.LTD AAA 7.16%
8 NHPC LTD. AAA 6.00%
9 EXPORT-IMPORT BANK OF INDIA AAA 5.06%
10 INDIAN RAILWAY FINANCE CORP.LTD AAA 4.89%
11 NTPC LTD AAA 3.63%
12 NUCLEAR POWER CORP.OF INDIA LTD AAA 1.15%
Following is the constituents of bond maturing in 2031. With Issuer Credit Rating Weight(%)
1 POWER GRID CORP. OF INDIA LTD. AAA 15.00%
2 REC LIMITED AAA 15.00%
3 POWER GRID CORP. OF INDIA LTD. AAA 15.00%
4 NATIONAL HIGHWAYS AUTHORITY OF INDIA AAA 15.00%
5 NUCLEAR POWER CORP. OF INDIA LTD. AAA 14.80%
6 INDIAN RAILWAY FINANCE CORP.LTD AAA 13.05%
7 HOUSING & URBAN DEVELOPMENT CORP.LTD AAA 9.62%
8 NHPC LTD. AAA 2.53%
The recent chaos in the few Debt Funds of Franklin Templeton Mutual Fund and the high amount defaults in the Credit funds have shaken the confidence of Investors, if you are someone who wants to park your money with absolute safe instruments and you don’t have any trusted advisor like FundWallet to manage your portfolio you can certainly go for this Bharat Bond ETF.
Happy Investing!
R♥Vi
All efforts have been made to ensure the information provided here is accurate. However, no guarantees are made regarding correctness of data. Please verify with scheme information document before making any investment.
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