Everything you need to know about the Bharat Bond ETF (Edelweiss PSU Debt ETF)

Edelweiss is set to launch a Bharat Bond ETF - a debt ETF that will only hold bonds issued by public sector undertaking (PSUs). Now the really interesting thing about this ETF is that it is a defined maturity ETF, similar to a Fixed Maturity Plan. Before I explain more about Bharat Bond ETF (PSU debt ETF), you can check out this post if you want to learn more about how an ETF works.

What do you mean by a defined maturity ETF?

A normal open-ended ETF doesn’t have a maturity date. It will trade for as long as the ETF is listed. But the Bharat Bond ETF will have maturity dates. To start with, Edelweiss is launching 2 series of ETFs. 2023 ETF and 2030 ETF which will expire in those respective years and the AMC will keep launching new series. Each series will have an index and the ETF will just track that index.

What is the Bharat Bond ETF?

Bharat bond ETF is a debt exchange-traded fund (ETF) that will only hold bonds issued by PSU companies owned by the Government Of India.

What will the ETF hold?

The ETF will only hold bonds with AAA credit rating issued by the Government of India owned companies such as REC, PFC, NHAI, etc.

How safe is the ETF?

Two of the biggest risks in bonds are default risk and interest rate risk. Default risk is nothing but the risk of a company not paying back its debt. Since the ETF will only hold bonds issued by PSUs, there is no default risk. PSU bonds carry an “implicit sovereign guarantee.” Meaning, the Govt doesn’t explicitly say that it guarantees the debt but it is understood that if something goes wrong the Govt will step in.

Interest risk remains. But if aren’t aware of what interest rate means


Pimco

This image should help you understand. We had also done a series of webinars on the basics of fixed income, you can check them out:

As interest rates rise and fall, the yields of the underlying bonds will rise and fall and by extension the price of the ETF. However, if you are holding the ETF until maturity, the risk will be negated.

How will the interest payments be paid?

The coupons in the ETF will be reinvested. And once the ETF matures, the entire proceeds will be paid out to you.

What will be the expense ratio of the ETF?

It will probably be in the range of 0.0005%, which is almost free but yet to be confirmed.

Can I sell the ETF before maturity?

Yes, you can, just like any other ETF. But a general word of caution, there might some liquidiity risk in ETFs given that ETFs aren’t really all that popular in India. By liquidity risk I mean, the difference between bids and offers. You can avoid this by placing limit orders.

What returns can I expect?

This depends on the prevailing interest rates. But currently, the yields are in the 7% range.

What will be the taxation on this ETF?

If sold within 3 years, it will be considered as short term and STCG as per your income slab will be applicable. If sold after 3 years it will be considered as long term and LTCG of 20% with indexation is applicable.

When is the issue opening and how can I buy Bharat Bobd ETF?

The NFO opens on December 12th and closes on December 20th. You can invest in Bharat Bond ETF here.

Constituents of the ETF.

Bharat Bond ETF 2023

The ETF maturing in the year 2023 will track the Nifty BHARAT Bond 2023 Index. These are the constituents of the index.

Index Name Yield Residual Maturity Macaulay’s Duration
Nifty BHARAT Bond Index - April 2023 6.69% 2.83 2.56
S.No. Issuer Name Yield Residual Maturity Macaulay’s Duration
1 EXPORT-IMPORT BANK OF INDIA 6.35% 2.78 2.49
2 HINDUSTAN PETROLEUM CORPORATION LIMITED 6.55% 3.03 2.81
3 HOUSING AND URBAN DEVELOPMENT CORPORATION LIMITED 6.71% 2.72 2.51
4 INDIAN RAILWAY FINANCE CORPORATION LIMITED 6.50% 3.25 2.84
5 NATIONAL BANK FOR AGRICULTURE AND RURAL DEVELOPMENT 6.70% 2.85 2.55
6 NATIONAL HIGHWAYS AUTHORITY OF INDIA 6.35% 2.65 2.45
7 NHPC LIMITED 6.47% 2.91 2.63
8 NTPC LIMITED 6.37% 2.58 2.33
9 NUCLEAR POWER CORPORATION OF INDIA LIMITED 6.57% 3.28 2.89
10 POWER FINANCE CORPORATION LIMITED 7.01% 2.81 2.54
11 POWER GRID CORPORATION OF INDIA LIMITED 6.42% 3.00 2.64
12 REC LIMITED 7.08% 2.96 2.68
13 SMALL INDUSTRIES DEVELOPMENT BANK OF INDIA 6.50% 2.61 2.41

Bharat Bond ETF 2030

The ETF maturing in the year 2030 will track the Nifty BHARAT Bond 2030 Index. These are the constituents of the index.

Index Name Yield Residual Maturity Macaulay’s Duration
Nifty BHARAT Bond Index - April 2030 7.58% 9.69 6.93
S.No. Issuer Name Yield Residual Maturity Macaulay’s Duration
1 EXPORT-IMPORT BANK OF INDIA 7.50% 10.01 6.99
2 INDIAN OIL CORPORATION LIMITED 7.40% 9.88 7.28
3 INDIAN RAILWAY FINANCE CORPORATION LIMITED 7.55% 9.73 7.05
4 NATIONAL BANK FOR AGRICULTURE AND RURAL DEVELOPMENT 7.55% 9.62 7.01
5 NATIONAL HIGHWAYS AUTHORITY OF INDIA 7.65% 9.60 6.90
6 NHPC LIMITED 7.39% 9.80 7.12
7 NLC INDIA LIMITED 7.37% 9.48 6.77
8 NTPC LIMITED 7.38% 9.62 7.03
9 NUCLEAR POWER CORPORATION OF INDIA LIMITED 7.37% 10.02 7.02
10 POWER FINANCE CORPORATION LIMITED 8.05% 9.52 6.62
11 POWER GRID CORPORATION OF INDIA LIMITED 7.35% 9.80 6.96
12 REC LIMITED 8.08% 9.47 6.61

Here’s a conversation with Dhawal Dalal, CIO of Fixed Income, Edelweiss Mutual Fund. In this conversation, we talk about the Bharat Bond ETF, Indian debt markets, the role of debt in a portfolio and a whole lot more.


5 Likes

Look to learn new thing from market thanks bhuvanesh

The cabinet has just approved the launch of Bharat Bond ETF. The NFO date hasn’t been confirmed yet but will be in the next couple of weeks.

The price of the unit will be Rs 1000 and the expense ratio of the ETF will be 0.0005 percent.

3 Likes

Any discount to retail investors?

Need to wait some more time to get all other info.

if zerodha will allowed margin against them, and what the return we expect and how the dividended will be given any clarification @siva, @Bhuvanesh

Almost all of your queries are about pledging :slight_smile:

If the exchanges accept it as collateral, we’ll look at. Ballpark, here’s how the yields will be. This is a debt ETF, no concept if dividends. Coupon payments on the other hand will be re-invested.
image

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yes correct buvanesh , if i am working smart then my money want to work hard 24/7 in all the ways

:joy::joy::joy:

thanks for your ETF return explaniation

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On 12 th NFO was open only for Anchor Investors. From 13th NFO will be open for Retail Investors.

You can apply here

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Is there a charge for applying levied by Zerodha?

No charges

Is Bharat Bond ETF is monthly like SIP?
We have invest every month like SIP?

An ETF is just like a stock. However, if you wish to do an SIP in the ETF, there is no automated way currently, but you can use the SIP alerts feature on Sentinel and then place orders

Another alternative would be to invest in Bharat Bond Fund Of Fund (FOF). This FOF holds the ETF and you can easily create a SIP just like you would in any other mutual fund. Currently we aren’t allowing subscription to the NFO of the Fund Of Fund but you can create an SIP in it as soon as soon as it is available for continuous purchase.

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What is the limit for retail investor for each type of bond 2023 and 2030

can retail investor invest 2L in 2023 and 2L in 2030 bonds ? total of 4 L ? in zerodha application ?

That’s correct.

Thank you!

Need to know if 1000 is invested at the end of 3 years(2023) I will get 1000+66.9*3=1200.7

how can i purchase Bharat bond Etf By using Zerodha?

You can apply here: https://zerodha.com/bharatbond-etf/