Debt ETF

What are Debt ETFs? 

Debt ETFs allow the investors to realise returns on their investments through exposure to fixed-income securities. Debt ETFs in India are sometimes referred to as bond ETFs due to their high exposure to bonds as the underlying asset. Debt ETFs in India are passively managed and track an underlying index's performance that compromises a basket of debt instruments. They increase returns by combining the benefits of debt instruments with the flexibility and simplicity of the equity market and mutual funds. Similar to other types of ETFs, debt ETFs in India are also listed on various stock exchanges. 

 

Who should invest in a debt ETF? 

Similar to equity ETFs that comprise a basket of stocks, debt ETFs in India include a basket of debt securities such as debentures and government bonds with different maturities. As debt ETFs in India are passively managed, they are a good investment option for investors who do not want to monitor and manage the investments constantly. 

Investors who want to allocate a portion of their capital towards debt instruments at a lower cost find debt ETFs as an ideal investment. Furthermore, investors who are looking to diversify their portfolios can look toward debt ETFs as they are considered the perfect tool to diversify and offset losses incurred in the equity class. Debt ETFs are listed on the stock exchanges similar to other types of ETFs and can be traded easily by investors who are not looking to buy debt securities directly. 

 

Benefits of Investing in debt ETFs

Investors who want to ensure a healthy portfolio allocate a portion of the capital to buy debt ETFs. When the capital is invested in the best debt ETF, it can provide the following benefits to an investor: 

Diversification: Debt ETFs invest the pooled money into a basket of fixed-income instruments such as government bonds. As the included securities in a debt ETF have various maturity periods, it allows for effective diversification for the investor by reducing the risk and increasing the returns. 


Low-cost: Debt ETFs aim to mirror the performance of the underlying index and hence, do not come with a high maintenance cost. Being passively managed, the expense ratio of debt ETFs in India is significantly lower than actively managed funds. It ensures that the returns are maximised without the costs seeping into the profits. 


Liquidity: Debt ETFs are listed on the stock exchanges and have no limitations within the trading sessions. Debt ETFs may see high demand from investors, resulting in higher liquidity. The trading volume and the resulting liquidity make it easy for the investors to buy and sell debt ETFs whenever they want. 


Transparency: Debt ETFs invest in the same debt securities that are included in the chosen underlying index. It allows for utmost transparency as investors already know the securities their investment will be exposed to. Furthermore, debt ETFs provide added transparency as the portfolio of debt ETFs is disclosed on a daily basis. 

 

How to Invest in Debt ETFs? 

Similar to other Exchange Traded Funds, debt ETFs are also listed on the stock exchanges and can be bought and sold with ease. Once you have opened a Demat and a trading account with 5Paisa, you can effectively trade in debt ETFs India by following the below process: 

  • Login to your 5Paisa Account. If you do not have an account, you can register with 5paisa to create a new one in 3 easy steps!
  • Once you have logged in to your account, search for your preferred debt ETF scheme or explore "All Mutual Funds" to find the best debt ETF in India. 
  • Select the best debt ETF in India according to your criteria. 
  • On the fund page, you can read all the additional information about the debt ETF, such as the underlying index, debt securities, fund managers, asset allocation etc. 
  • Select the investment type - SIP or Lumpsum for the debt ETF  you have chosen. 
  • Proceed with the payment. Once you have completed the payment, you will receive a confirmation text and email from 5Paisa confirming that you have successfully invested in the chosen debt ETF. 

Frequently Asked Questions

ETFs are of five types: Equity ETFs, Debt ETFs, Gold ETFs, Currency ETFs, Silver ETFs and Commodity ETFs.

Yes, ETFs can provide immense diversification and good profits based on the price appreciation of the underlying assets.

You can buy debt ETFs in India, similar to the process of buying shares. Login to your 5Paisa account, search for the debt ETF you want to buy and place an order.

The main difference between debt mutual funds and debt ETFs in India is their management. Debt Mutual funds are actively managed, while debt ETFs are passively managed.

The main difference between FDs and debt ETFs is the payment potential. FDs provide monthly/quarterly interest to the investors, while there are no interest payments in debt ETFs.

The investment depends on the set goals, capital amount and, most importantly, financial knowledge. Investing in debt securities directly would require extensive financial knowledge while investing in debt ETFs is a simpler process to ensure diversification without having to monitor and manage the positions.