Bharat Bond ETF 2032: Expected returns and everything else you need to know


by 5paisa Research Team Last Updated: Dec 03, 2021, 02:53 PM IST

The government has come up with the third tranche of the Bharat Bond Exchange Traded Fund (ETF) that basically tracks the Nifty Bharat Bond Index 2032. 

Named the Bharat Bond ETF 2032, the new fund offer (NFO) begins today, December 3, and go on till December 9. 

How much is the government looking to mop up from the Bharat Bond ETF 2032 NFO?

The government is looking to rake in up to Rs 5,000 crore. The ETF has a base size of Rs 1,000 crore as well as an additional greenshoe option. 

Which mutual fund house is offering the new tranche?

The latest tranche is being offered by Edelweiss Asset Management Co, which had also offered the first two tranches of the Bharat Bond ETF. 

How is the latest tranche different from the previous two?

The previous two tranches offered two variants of five- and ten-year bonds. The third tranche offers only one ten-year bond ETF—the Bharat Bond ETF 2032—whose units will mature in a decade from now.

Which bonds will the Bharat Bond ETF 2032 buy?

The ETF will buy bonds of central public sector enterprises maturing within one year of 2032. The ETF will invest in bonds of eight such government-owned companies, with the top five being given a 15% weightage each, and the remaining 25% being distributed among the bottom three. 

How much return can investors actually expect?

 As of November 2, the yield on the underlying index was 6.87% pre-tax. 

How can investors without a demat account buy into these ETFs? 

Typically, to buy directly into an ETF, investors need a demat account. But those without one can also buy into a fund of funds that is also being launched. The fund of funds will invest in the ETF and mirror the yields from it. 

Is the Bharat Bond ETF secure?

Analysts say that since the Bharat Bond ETF invests in AAA-rated bonds of government-owned companies, there is little to no credit risk. That makes it a high-quality investment option in debt funds. Investors should consider the ETF if they have long enough time frame that allows them to hold on to the units till maturity. 

How are gains on the ETF investment taxed?

Gains on units held till maturity will give the investor indexation benefits for 11 years. Gains on debt fund units held for more than three years are taxed at 20% after indexation. The interest earned on those bonds will be taxed at the marginal rate.

Moreover, the mutual fund structure takes care of the fact that investors have to look to reinvest the interest received.

“At the current juncture, for investors in higher tax brackets, this is a viable investment option as interest rates are likely to remain stable for an extended period of time due to the new variant of COVID-19 spreading in other countries and economic growth being be at risk,” says Deepak Panjwani, head of debt markets at GEPL Capital, according to a Moneycontrol report. 

But is everything good with these ETFs?

While there is low risk, they are not exactly risk-free. Any downgrade or default will affect the value of the bonds held and the returns given by the scheme. 

Moreover, while yields are better than short-duration bonds, if inflation remains up for an extended period of time, those yields may not look too attractive. 

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