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Bond ETFs: A cost-effective way for investors to take debt-market exposure

Investors today are aware of debt mutual funds, but ETFs and specifically bond ETFs are yet to gain traction in India.

October 10, 2019 / 08:44 IST
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Radhika Gupta

After marking its footprint in developed markets, passive investing is gaining popularity in India over the last couple of years. Equity Exchange Traded Funds (ETFs) have gained the most from this popularity, with more than Rs 1.38 lakh crore of assets being managed in these ETFs. Gold ETFs manage around Rs 5,800 crore, but there are virtually none on debt side. With only two G-Sec ETFs with a mere Rs 4 crore AUM (assets under management) and no ETFs in the bonds space, there is a big vacuum that needs to be filled up soon.

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Globally, Bond ETFs have crossed $1 trillion in AUM, this is around 25 per cent of the entire $4 trillion AUM under various types of ETFs. In India, bond ETFs have a long way to go. To fill this void, the Government of India has planned to launch India’s first bond ETF that will invest in the bonds of Government owned entities.

Slow to take off in India