Modi cabinet clears Bharat Bond ETF launch! Know what it means for an investor

Bharat Bond ETF would replicate its holdings based on the composition of a new index comprising of debt securities issued by state-run firms with AAA rating.

Modi cabinet clears Bharat Bond ETF launch! Know what it means for an investor
Nirmala Sitharaman on 4th December 2019 announced the launch of the Bharat Bond Exchange Traded Fund. Photo: Reuters
Written By: Asit Manohar
Edited By: Harish Dugh
Updated: Wed, Dec 04, 2019
08:43 pm
New Delhi, ZeeBiz WebDesk
RELATED NEWS
Budget 2020, Economic Survey Date: First time ever Union Budget on Saturday? What we know so far Budget 2020, Economic Survey Date: First time ever Union Budget on Saturday? What we know so far
GST compensation due for all states, not just for some: FM Nirmala Sitharaman GST compensation due for all states, not just for some: FM Nirmala Sitharaman
Forbes World's 100 Most Powerful Women list 2019: FM Nirmala Sitharaman ranked above Queen Elizabeth, Ivanka Trump Forbes World's 100 Most Powerful Women list 2019: FM Nirmala Sitharaman ranked above Queen Elizabeth, Ivanka Trump
RBI did not object to electoral bonds through SBI: FM Nirmala Sitharaman RBI did not object to electoral bonds through SBI: FM Nirmala Sitharaman
Rajya Sabha passes Taxation Laws (Amendment) Bill Rajya Sabha passes Taxation Laws (Amendment) Bill

Bharat Bond ETF: In an attempt to deepen the bond market in India and bring in a diverse set of investors, Finance Minister Nirmala Sitharaman on 4th December 2019 announced the launch of Bharat Bond Exchange Traded Fund (ETF) being cleared by the Modi cabinet. This Bharat Bond Exchange would replicate its holdings based on the composition of a new index comprising of debt securities issued by state-run firms with AAA rating. Quality of the issuers, sizeable volumes for retail participation and liquidity of the underlying securities would be the main factors for its successful implementation. NAV of this Bond ETF would be impacted by the fundamental developments of the issuing companies.

Structured like a closed-ended fund with a fixed maturity, the bond variant - 3-years would be a safe bet for investors who wish to hold till maturity to avoid intermittent change in NAV values. Returns of this 3-year variant could be compared to Banking & PSU debt funds which have an average maturity of 2-4 years and similar portfolio holding. Longer duration variant (10-years) would naturally bear high duration risk and can be considered by informed investors who want to take high duration bets. This can be compared with Medium to Long term duration funds but these funds have a diverse set of investments including private corporates both listed and unlisted. Compared to Gilt funds, this ETF could provide additional return due to corporate spreads but also exposes a trader to movement in spreads.

See Zee Business Live TV streaming below:

Speaking on the Bharat Bond ETF Deepak Jasani, Head Retail Research at HDFC Securities said, "Unlike CPSE ETF & Bharat 22 ETF (Equity ETF), which saw huge participation by retail investors to encash discount and ride on PSU equity theme, this bond ETF will appeal to informed investors already having exposure to debt funds/products and expecting limited returns. As compared to debt funds this bond ETF entails brokerage and Demat costs for investors buying from the secondary market. However, the lower expense ratio in this ETF will offset this for medium and long term investors."