The exchange-traded fund (ETF) will open for subscription this Friday, offering a safe investment for risk-averse investors.
All 10-year papers maturing in 2032 will be included in the third tranche of Bharat Bond ETF as per NSE Bharat bond target maturity index. This could help beat inflation with its post-tax returns.
The Bharat Bond ETF is an initiative of the Department of Investment and Public Asset Management, under the Ministry of Finance. Edelweiss Asset Management is mandated to manage the fund.
The ETF seeks to track investment results of the Nifty Bharat Bond Index and invests in high-quality AAA-rated public sector bonds.
“For individuals in the highest tax bracket, it makes every sense to invest in Bharat Bond ETF for a long-term capital appreciation,” said Vikram Dalal, founder of Synergee Capital. “Under the current situation, an investor cannot expect any better post-tax yield in comparison to other popular options like a bank fixed deposit or tax-free bonds.”
“Bharat Bond would be the safest bet amid uncertain rate trajectory as it invests only in long-term central PSU securities,” he added.
If the indicative yield on Bharat Bond ETF is 6.80 per cent, and an investor remains invested for three years, then the returns will qualify as long-term capital gain. The post-tax returns would be around 6.25 per cent assuming the 33 per cent income tax slab, if the investor remains invested till the maturity of the ETF.
This is at least 1.75 percentage points higher than existing tax-free bonds available in the market. State Bank of India’s three-year fixed deposit offers 5.30-5.80 per cent – the higher rate for senior citizens.
“There is better visibility on returns from target maturity funds than other open-ended debt funds,” said Joydeep Sen, a fixed-income consultant at Phillip Capital. Having a defined maturity date for the fund, the residual or remaining maturity of the portfolio rolls down with every passing day, which progressively reduces market-related volatility on returns.
“However, investors should keep in mind that if it is sold / redeemed prior to maturity, there would be some market-related volatility, which could be unfavourable if bond prices are down,” he said.
The first tranche of Bharat Bond ETF was launched in January 2020, mopping up about ₹12,500 crore. The maiden series included two maturities: April 2023 and April 2030. Those are currently yielding 4.74 per cent and 6.78 per cent.
The second tranche launched in July 2020 raised ₹11,000 crore, also in two tranches: April 2026 and April 2031. They are yielding up to 6.81 per cent.
