Home / Mutual Funds / News /  Bharat Bond ETF third tranche launches today. Should you subscribe?

The Government has come out with the third tranche of its flagship Bharat Bond ETF Bharat Bond ETF which is set to launch today and the new fund offer will end on December 9, 2021. The NFO will have a base issue size of 1,000 crore with an open greenshoe option. The new ETF, referred to as Bharat Bond ETF April 2032, is a 10-year product maturing in April 2032.

Bharat Bond ETF is an exchange-traded fund that invests in the debt of public sector companies. The ETF currently invests only in 'AAA' rated bonds of public sector companies. 

"The underlying index consists of AAA-rated public sector undertakings with an indicative yield of 6.87%, maturity date of April 15, 2032 and a modified duration of 6.74 years. The bond ETF will enjoy tax advantage in the form of indexation benefit similar to debt mutual funds (20% with indexation). While the actual tax implication depends on future inflation index, indicative after tax yield could be ~6.4%," said ICICI Securities in a note.

Bharat bond ETFs provide higher degree of certainty of returns (if held-to maturity) with a higher safety of capital as it invests in government owned AAA rated public sector bonds. With the current prevailing low interest rate regime, which is likely to continue, some allocation could be considered by investors looking to lock in safe and predictable returns and not concerned about intermittent interest rate volatility, it added.

Recommending to Subscribe, ICICI Securities said that a corporate bond fund (exposure to AAA-rated papers) is currently offering a yield (net of expenses) of less than 5.0%. Therefore, the 2.0% higher yield offered by Bharat Bond ETF is an “excellent investment opportunity in the current environment even after considering any rise in interest rates, going forward."

Edelweiss AMC is managing this ETF and the fund house has also launched a ‘fund of fund’ (FoF) for this ETF to facilitate retail investors to buy/sell like a normal mutual fund. For retail investors, this Bharat Bond FoF is better suited in terms of convenience and liquidity, the note highlighted.

The second tranche of the Bharat Bond ETF was launched in July 2020 and was oversubscribed more than 3 times, collecting about 11,000 crore. It had fetched about 12,400 crore in its debut offer in December 2019. 

 

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