Bharat bond ETF is a new & safe investment option for cautious investors.
Retail investors can now get access to public sector bonds through Bharat Bond ETFs, which can be freely traded on exchanges.
In these uncertain times, it’s hard to find safe investment avenues. Bonds of public sector companies are a good, safe choice, but they’re usually unavailable for retail investors. Moreover, they have long lock-in periods and hence not so liquid. These limitations can be overcome with Bharat Bond ETF, which offers cautious retail investors access to PSU bonds. And since they are exchange-traded funds, and freely traded on exchanges, you can buy and sell units whenever you choose.
Bharat Bond ETF is managed by Edelweiss Mutual Fund.
- Portfolio: Bharat Bond ETFs invest in the bonds of public sector companies that have an AAA rating. This is the highest possible rating that can be given to bonds of any kind, indicating a very high level of safety. A small portion of 5 per cent is invested in government securities and tri-party repos (TREPS) to manage liquidity.
- Maturity period: These bonds have fixed maturity periods. You can purchase bonds with a maturity period of three years and 10 years.
- Liquidity: If you don’t want to hold the bonds till maturity, you can sell them through your trading account on the National Stock Exchange and Bombay Stock Exchange.
- Transparency: Net asset values (NAVs) are available throughout the day since the fund is tracked by the Nifty Bharat Bond Index. You can also view the portfolios.
- Yield: Yield as of 15 December 2019 for the three-year investment option was 6.83 per cent and 7.75 per cent for the 10-year investment option.
- Taxation: Tax treatment of Bharat Bond ETFs is similar to that of debt funds. If held for over three years, you get indexation benefit. The long term capital gains tax would be 20 per cent after indexation or 10 per cent with no indexation. If sold before three years, returns will be added to your income and you will be taxed according to your income slab.
Are Bharat Bond ETFs right for you?
Certainly, Bharat Bond ETFs offer a good deal for investors. The returns appear to be comparable to gilt funds and slightly higher than bank deposits. On the liquidity front, these ETFs score higher than bank FDs and similar to gilt funds.
As far as taxation goes, Bharat Bond ETFs are better than bank FDs because they get the benefit of indexation, like debt funds. The indexation benefit means that the longer you hold Bharat Bond ETFs, lower will be your tax outgo.
Bharat Bond ETFs have an advantage over debt funds in that the bonds in the fund are held till maturity. So there is no interest rate risk involved. In debt funds, if interest rates go up, yields of bonds in their portfolios fall, thus leading to a fall in net asset values.
The total expense ratio (TER) of Bharat Bonds ETF is almost zero, at 0.0005 per cent, which is very low compared to other debt funds.
If you’ve maxed out on bank fixed deposits, Bharat Bond ETFs offers an excellent opportunity to diversify your portfolio. It’s also a good alternative to debt funds like gilt or PSU funds since there is no interest rate risk involved.
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