Bharat Bond ETF: the 3rd tranche of Bharat Bond ETF to raise Rs 5,000 cr, offers 6.8%

Mumbai: The third tranche of the Bharat Bond ETF aims to raise up to 5,000 crore yen, offering an estimated return of 6.8%, two market sources familiar with the matter told ET.

The exchange-traded fund (ETF) will open for subscription this Friday, offering a safe investment for risk-averse investors.

All 10-year papers due in 2032 will be included in the third tranche of the Bharat Bond ETF in accordance with the target maturity index of NSE Bharat bonds. It could help beat inflation with its after-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 replicate the 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 a lot of sense to invest in Bharat Bond ETF for long-term capital appreciation,” said Vikram Dalal, founder of Synergee Capital. “In the current situation, an investor cannot expect a better after-tax return over other popular options like a fixed bank deposit or non-taxable bonds.”

“Bharat Bond would be the safest bet in the context of an uncertain rate trajectory, as it only invests in long-term central PSU securities,” he added.

If the indicative yield of the Bharat Bond ETF is 6.80% and an investor remains invested for three years, then the returns will be considered as a long-term gain. The after-tax returns would be around 6.25 percent assuming the 33 percent income tax bracket, if the investor remains invested until the ETF matures.

This is at least 1.75 percentage point more than the existing tax-free bonds available in the market. The State Bank of India’s three-year fixed deposit offers 5.30 to 5.80 percent – the highest rate for seniors.

“There is better visibility into the returns of target maturity funds than other open-ended debt funds,” said Joydeep Sen, fixed income consultant at Phillip Capital. Having a defined maturity date for the fund, the residual or remaining maturity of the portfolio decreases every day, which gradually reduces the volatility of market-related returns.

“However, investors should keep in mind that if it is sold / redeemed before maturity, there would be some market-related volatility, which could be unfavorable if bond prices are down,” a- he declared.

The first tranche of the Bharat Bond ETF was launched in January 2020, paying off approximately 12,500 crore. The first set included two deadlines: April 2023 and April 2030. These currently yield 4.74% and 6.78%.

The second tranche launched in July 2020 raised 11,000 crore, also in two tranches: April 2026 and April 2031. They report up to 6.81%.

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