Are you the one who is not happy with debt mutual fund credit risk?
And, also unhappy with the low returns from the FD?
Are you the one who is looking for the investment avenue in which the capital should be safe and returns should be better than FD?
Then there is an option available for you.
Bharat Bond ETF you must be familiar with this name.
Now in this blog will try to understand more about the Bharat Bond ETF-
Why it is considered as safe investment?
The Bharat Bond ETF is being launched by the Government of the India, which will raise debt for PSUs and the money will be invested in the AAA rated papers of the Govt. companies.
First, launched in Dec 2019.The maturity period of the fund will be three years in April 2023 & ten years on April 2030.
And, other NFO is coming between 14th to 17th July 2020 the maturity period of the fund will be five years in 2025 & eleven years in 2031.
How to invest in Bharat Bond ETF?
Firstly, we can invest through NFO in July 2020. Investor can get the form for NFO at www.BharatBond.in and submit it to any of the branches of Edelweiss.
Another way of investing is through stock exchange because this is an ETF.
If in case you don’t have D-mat account then the another way is to invest through fund of fund all the fund house will come up with the fund of fund which will invest in this ETF like other mutual fund schemes with the minimum investment of Rs.1000 and multiples of Rs.1000 thereafter.
Will it have any exit load?
There will be 0.10% exit load if redeemed with in 30 days. There is no lock-in period. But its better to be hold till the maturity as the fund has interest rate risk.
What is the likely yield for Bharat Bond ETF?
Bharat Bond indices indicate the yield of 7.58% for the 10 year index maturing in 2030 and 6.69% for 3 year index maturing in 2023.
The indicative yield for upcoming tranche launching in July 2020 is 7% for the 11 year index maturing in 2031 and for 5 year index maturing in 2025.
How they can give this indicated yield?
ETF gives investor visibility on their yield, its like buying a bond and holding it till the maturity. Fund manager does not do any churning in between like other debt mutual funds. Bharat bond ETF hold a basket of bonds and receive coupon income and repayment of principal on maturity, which will be distributed to the unit holders. That’s why it’s easy to calculate the yield.
Now, let’s compare Bharat Bond ETF with the Debt mutual funds-
In terms of safety there is no default risk, or we can say no credit risk associated with the Bharat bond ETF. There is an Interest rate risk but that can be mitigated by holding the fund till the maturity.
Debt mutual fund have 16 different categories with different mandates. Out of that 16 categories there are two categories Gilt Funds and Banking & PSU fund
The expense ratio for Debt Fund is between 0.05% to 1.04%. Whereas, in Bharat Bond ETF has an expense ratio of 0.0005%.
In Debt mutual fund the portfolio id updated once in a month. Whereas, in Bharat Bond portfolio disclosure happens every day.
In debt mutual fund many options are available as per the duration Ultra short term, Short term and Long term. Whereas, In Bharat bond ETF limited options are there 3 year, 10 year, 5 year & 11 year.
Liquidity for both the instrument is same.
Taxation for both the investments is same.
Now, let’s compare 5 year Bharat bond ETF with 5 year Bank FD-
In terms of return the current interest rate of credible banks FD is 5.5% to 5.57%. Whereas, for 5-year Bharat Bond ETF indicative Yield is 6.04%.
FD is taxed as per the Slab rate of the investor and Bharat Bond ETF gets the indexation benefit if we hold for more than 3 years.
Why invest in Bharat Bond ETF?
Safety- Invests in AAA govt paper.
High Liquidity
Indexation Benefit
Low expense ratio