What is BHARAT Bond ETF managed by Edelweiss Asset Management Limited

Earlier this year, Edelweiss Asset Management Company received the mandate from the Government of India to manage an exchange traded fund (ETF) which will invest in bonds of Public Sector Companies.

What are Exchange Traded Funds?

Exchange Traded Funds (ETFs) are financial instruments which invest in a basket of securities (e.g. stocks, bonds, commodities etc.) and are listed on stock exchanges like shares of companies. After the offer period, the units of ETFs can be bought or sold on the exchanges.

Unlike mutual funds, where prices or net asset values (NAVs) are published at the end of the business day based on market value of the underlying securities, ETF prices are determined by trading activity on the exchange i.e. seller’s offer prices and buyer’s bid prices. The expenses of ETFs are much lower than actively managed mutual fund schemes. The main aim of an ETF asset manager is to replicate the underlying index. Note that investors need to have a demat and trading account to invest and transact in ETFs.

What is – BHARAT Bond ETF?

The BHARAT Bond ETF is an exchange traded fund that will invest in a basket of bonds issued by CPSEs/CPSUs/CPFIs and other government organizations. An index would be created out of this basket of eligible debt issuers as per an appropriate index construction methodology. The main aim of the ETF is to replicate the performance of the underlying index. You can invest in this ETF during the new offer period at par value (face value – Rs. 1000). After the offer period, you can buy or sell the units of the ETF at any time during trading hours, on the stock exchanges just like listed securities. As mentioned earlier, this BHARAT Bond ETF will be managed by Edelweiss AMC.

Benefits of BHARAT Bond ETF

• High Liquidity:

  Liquidity is provided to investors in two ways– trading through exchanges or directly through AMCs. Retail investors mostly use the exchange for ETF transactions. Market makers are appointed by Edelweiss AMCs to ensure liquidity and fair price on the exchanges. In addition to the exchange route, large ticket investors can also transact directly with AMCs in multiples of a pre-specified basket size (Rs. 25 Crores).



• Superior Credit Quality:

  Credit risk is a major concern for investors in debt mutual funds. Since the BHARAT Bond ETF will invest in AAA rated bonds issued by CPSEs/CPSUs/CPFIs and other Government organizations, the underlying securities of ETFs will enjoy quasi sovereign (Government) status as far as credit quality is concerned.



• High Transparency:

  By its structure, BHARAT Bond ETF will be much more transparent than debt mutual funds. Debt mutual funds disclose their underlying portfolio once a month. The ETF bond portfolio, on the other hand, will be visible everyday on the website - www.bharatbond.in

Tax Advantage

BHARAT Bond ETF will enjoy a taxation advantage.While short term capital gains (investment held for less than 3 years) from the ETF will be taxed as per the investor’s income tax slab, long term capital gains (investment held for more than 3 years) from the ETF will be taxed at 20%, after allowing for indexation benefits. For investors in the higher tax brackets with investment tenures of more than 3 years, the BHARAT Bond ETF will be relatively more tax efficient compared to traditional fixed income schemes.

Summary

• BHARAT Bond ETFis the first of its kind fixed income investment product for retail investors in India. It is suitable for all retail investors, HNIs, and institutional investors.


• With a relatively small investment amount, you can get exposure to a basket of high credit quality (quasi sovereign) debt securities of CPSEs/CPSUs/CPFIs and other Government of India organizations through this ETF.


• You can get stable, tax efficient (for 3 years plus tenures) returns and at the same time, good liquidity and transparency in this investment.

Investors should consult with their financial advisors or contact Edelweiss Mutual Funds to know more about this ETF and assess whether it is suitable for their financial needs.