Cabinet Launches Bharat Bond ETF

The Union Cabinet on December 4 launched the Bharat Bond Exchange Traded Fund (ETF) aiming to attract retail investors to government debt, with units priced as low as Rs 1,000. It is expected to deepen the bond market and bring in retail participation in the sector.

Crux of the Matter

1. The Bharat Bond ETF which is the first corporate bond in the country will be managed by Edelweiss Mutual Fund.

2. It was launched after two years of deliberations between the Government of India and all stakeholders.

3. It will have a fixed maturity of three and ten years and will trade on the stock exchanges.

4. The cost to the ETF investor is almost negligible at 0.0005%. as compared to the mutual funds which are 100-150 basis points

5. Bond ETF will provide safety, liquidity and provide tax efficiency as they are taxed with the benefit of indexation which significantly reduces the tax on capital gains for investor.

6. Retail investors can buy Bharat Bond ETF units by paying Rs.1,000 to market-makers, who would then aggregate and pay Rs.1 crore to Edelweiss to buy the units. Edelweiss has tied up with a number of market-makers to facilitate this ease of access.

7. Radhika Gupta, CEO of Edelweiss Mutual Fund said, “Debt of sovereign always demands a premium; so, this will be a good offering for retail investors. This product is safeguarding both the safety and return expectation of retail investors.”

8. The government in 2014 had launched ETF for equities which proved to be successful and thus it decided to launch ETF for bonds to provide additional money for state-owned firms.

Curiopedia

Exchange-traded fund (ETF) is an investment fund traded on stock exchanges, much like stocks. Most ETFs track an index, such as a stock index or bond index. ETFs may be attractive as investments because of their low costs, tax efficiency, and stock-like features. ETF distributors only buy or sell ETFs directly from or to authorized participants, which are large broker-dealers with whom they have entered into agreements. An ETF combines the valuation feature of a mutual fund which can be bought or sold at the end of each trading day for its net asset value. ETFs have been available in the US since 1993 and in Europe since 1999. ETFs traditionally have been index funds, but in 2008 the U.S. Securities and Exchange Commission began to authorize the creation of actively managed ETFs. More Info

Curated Coverage

1. Live Mint – Bharat Bond ETF: 10 things to know about India’s first corporate bond ETF

2. Economic Times – India’s first debt ETF is here! Retail investors can now bet on bonds

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