Bharat Bond ETF’s third tranche likely to launch on December 3

Bharat Bond ETF is a debt exchange traded fund, which allows investors to invest in bonds of PSU companies, and lets PSUs raise debt funds

The third tranche of Bharat Bond ETF is likely to get launched on December 3, 2021, according to people in the know. The ETF issue is likely to have a greenshoe option, which will allow any over-subscription over the base issue to also get absorbed in the issue.

Bharat Bond ETF is a debt exchange traded fund, which allows investors to invest in bonds of PSU companies, and lets PSUs raise debt funds.

The Bharat Bond ETF is an initiative of Department of Investment and Public Asset Management (DIPAM), under the Ministry of Finance and managed by Edelweiss MF.

The third tranche of the ETF is expected to have maturity of April 2032.

The first tranche of Bharat Bond ETF, which was launched in January 2020, raised Rs 12,400 crore, while second tranche launched in July 2020, raised Rs 15,000 crore.

At the moment, there are four Bharat Bond ETFs with different maturities -- April 2023, April 2025, April 2030 and April 2031.

Between them, these ETFs are managing Rs 36,359 crore worth of investor assets, as of October 31, 2021.

Following Bharat Bond ETF, there has been a surge of passively-managed debt funds in the mutual fund industry. As many as 11 passively-managed debt schemes have been filed with SEBI, while several have already been launched by fund houses.

As more passively-managed debt schemes come up across different maturities, investors can use these for a bond ladder strategy.

A bond ladder is a portfolio of bond investments, maturing at different dates. Bond ladder also helps to mitigate reinvestment risk.

For example, if an investor invests today at low interest rates for the long-term and rates rise after a year, investor will miss out on investing at higher rates. So, investor can ladder-up across bond maturities between near to long-term. This ensures that bonds mature at regular intervals over time and the same can be reinvested at prevailing interest rates.

This also ensures availability of funds at intervals, and by holding bonds till maturity, the impact of rising bond yields is mitigated.