The launch of India's first bond exchange-traded fund (ETF) giot approval from the Union Cabinet yesterday. The ETF- Bharat bond ETF can be bought and sold like any other listed securities in bourses. It is expected to create additional sources of funding for CPSUs (Central Public Sector Undertakings), CPSEs (Central Public Sector Enterprises), CPFIs (Central Public Financial Institutions) and other government organisations.
It will be made of AAA rated papers issued by government linked companies. Edelweiss Asset Management will launch the first tranche/ part probably in the first week of January. This will provide liquidity, safety (since it would be issued by Govt.- linked entities) and predictable tax efficient returns and the investors can buy it to a lowest amount of Rs.1000, providing easy and low cost access to bond markets.This would welcome participation of many retail investors as they are not currently participating in bond markets due to liquidity and accessibility constraints.
Government expect, this could deepen the corporate bond market long run as it could drag attraction of retail customers.According to debt market specialists, this will help to increase the interest of retail investors in the debt market with low risk and better returns.
Radhika Gupta, CEO, Edelweiss AMC stated that, "The launch of Bharat Bond ETF will create a regulatory and market ecosystem for the growth of other fixed income passive instruments and global experience has shown that bond ETFs have a significant contribution to corporate bond market development. It will also diversify borrowing of public sector companies, bringing new participants like retail investors and HNIs (High Network Individuals) in the bond markets."
According to Joydeep Sen, founder of wiseinvestor.in, the Bharat bond ETf would be a viable option for the debt investors as it possess features like high credit quality, low expense ratio, tax efficiency (ideal to substitue bank fixed deposits) and close-ended.
While announcing, Finance Minister Nirmala Sitharaman stated that, "It will be the first bond ETF providing additional money for PSUs as well as other government organisations".
The Bharat bond ETF is expected to bring a lot of developments including
- complete yield curve of high quality public sector bond
- transparency in pricing
This ETF will be a basket of bonds issued by state firms and will be traded on the exchange. Each will have a definite maturity date-supposed to have two maturity series of three and ten years. It will track the existing on risk replication basis. Investments into this would provide a bunch of benefits to both investors and government, as it provides tax efficiency compared to other bonds, capital gains, low trading charges of a;most 0.0005%,etc.
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