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Last Updated : May 22, 2020 07:37 PM IST | Source: Moneycontrol.com

Bharat Bond ETF second tranche to launch in July: All your questions answered

Under the second tranche, two new series of 5-year and 11-year bonds respectively, will be launched, through which the government hopes to raise Rs 14,000 crore


The second tranche of the Bharat Bond ETF will be launched by Edelweiss Asset Management in July this year. Under the second tranche, two new series of 5-year and 11-year bonds will be launched through which the government hopes to raise Rs 14,000 crore.

The two new series will mature in April 2025 and April 2031.

"Through the launch of these two new ETF series, Edelweiss Mutual Fund proposes to raise an initial amount of Rs. 3,000 crores with a greenshoe option of Rs 11,000 crores based on market demand," Edelweiss said in a statement on May 22.

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The ETF will invest in constituents of the Nifty Bharat Bond Indices, consisting of AAA-rated public sector companies.

Bharat Bond Funds of Funds (FOF) with similar maturities will also be launched for investors, who do not have demat accounts, the fund house said.

This comes after the successful launch of the initial series of the ETF in December 2019. The first round of the Bharat Bond ETF had successfully raised over Rs 12,400 crores from a diverse set of investors.

The Bharat Bond ETF program is a government initiative and Edelweiss AMC has been given the mandate to design and manage the product.

"The launch is in line with our vision to create a ladder of Bharat Bond ETFs across various maturities on the yield curve. This will provide more options for investors to match their investment needs with different time horizons,” Radhika Gupta, CEO of Edelweiss Mutual Fund said.

Below are answers to a few common questions on Bharat Bond ETF second tranche

What is an exchange-traded fund (ETF)?

A. An ETF is a mode of investment that comprises a basket of securities that are traded, similar to individual stocks, on an exchange during regular trading hours. Akin to an index fund, an ETF tracks a basket of stocks; typically, stock market indices like Sensex and the Nifty to which it is pegged

An ETF is comparable with an index fund, except that the ETF is listed on the stock exchange and is traded.

Then what are bond ETFs?

A. A bond exchange-traded fund (ETF) is a type of ETF that exclusively invests in bonds/ a basket of bonds in the underlying index. It can invest in the government, corporate, or public sector unit bonds.

Why should I invest in Bharat Bond ETF?

A. It offers multiple benefits to conservative debt-fund investors who wish to save for the long term. It has a relatively high-quality portfolio of select public sector companies, it is cheaper with extremely low expense ratio and it offers a tax-efficient return compared to other options such as bank fixed deposits.

Does Bharat Bond ETF have a lock-in period?

A. On paper, it does not have a lock-in because it is listed on the stock exchange and anyone is free to buy or sell it. But it is designed like a ‘target maturity’ fund. In simple words, it will buy bonds that typically mature before or around the scheme's maturity (April 2025 and April 2031; the two new tranches being launched now). The two variants of Bharat Bond ETF are designed to benefit investors and give them returns commensurate to the underlying bonds in which these two instruments would invest in. But for this, it’s crucial that investors stay invested until the schemes’ maturities. In a way, Bharat Bond ETF is like a fixed maturity plan; you can exit it midway but it works best if you stay invested till maturity.

Some debt funds are known to have taken credit risk. Will Bharat Bond ETF follow suit?

A. Bharat Bond ETF invests in only AAA bonds. It aims to stay away from low rated securities and if there are any downgrades in its existing securities, it will sell those securities at its soonest.

What is the minimum investment required for Bharat Bond ETF?

A. Starting from a minimum Rs 1,000, investors can invest in Bharat Bond ETFs in multiples of Rs 1,000 thereafter.

I am a retail investor. How can I invest in Bharat Bond ETFs?

A. You can either invest directly through the ETF (brokers) if you own a demat account or consider investing through the Bharat Bond Fund-of-Fund route in case you do not have a demat.

What kind of return can I expect from Bharat Bond ETF?

A. Like any other investment, the return will depend on how long you hold the ETF units. The return is likely to be closer to the indicated index yield (at the time of investment) if you choose to hold the units until maturity.

I am an NRI. Can I invest in Bharat Bond ETF?

A. Yes, Bharat Bond ETF is among the very few options that is open for non-resident Indians to invest in debt funds here.

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First Published on May 22, 2020 05:40 pm
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