Bharat Bond ETF

Bharat Bond ETF is India’s first corporate bond Exchange Traded Fund, launched in December 2019 by the government under the Ministry of Finance. It invests exclusively in bonds of public sector undertakings (PSUs) and has a defined maturity date, giving investors a predictable income and capital return profile similar to an FD but in ETF form.

What Is Bharat Bond ETF?

Bharat Bond ETF is a target maturity ETF that invests in a portfolio of bonds issued by AAA-rated central public sector enterprises (CPSEs). Each series has a specific maturity year (e.g., April 2025, April 2030, April 2031, April 2032). When the ETF matures, it winds up and investors receive the proceeds.

Nippon India Mutual Fund manages the ETF on behalf of Edelweiss AMC.

Key Features

– **Underlying**: bonds of AAA-rated CPSEs like NHAI, NTPC, REC, PFC, IRFC, Power Grid, etc.
– **Target maturity**: each series matures in a specific year, giving investors a known investment horizon
– **Tradeable on exchange**: bought and sold on NSE like an equity ETF
– **Low expense ratio**: 0.0005% per annum (extremely low), making it one of the cheapest bond investments
– **Demat required**: needs a demat account for ETF units; a Fund of Fund (FoF) version is available for those without demat

Tax Advantage Over FD

Bharat Bond ETF units held for over 3 years qualify for Long Term Capital Gains tax at 20% with indexation. This makes the post-tax return significantly better than an FD for investors in higher tax brackets, because FD interest is taxed at slab rate (up to 30%).

For a 30% taxpayer with an investment of 3+ years, the effective tax advantage of Bharat Bond ETF over FD can be 5% to 10% in post-tax returns.

Note: Budget 2023 removed indexation benefits for debt funds for purchases after April 2023. Check current tax treatment before investing.

Bharat Bond ETF vs FD

| Feature | Bharat Bond ETF | Fixed Deposit |
|———|—————-|—————|
| Issuer | AAA-rated CPSEs | Bank |
| Returns | Similar to G-Sec + spread | FD rates |
| Liquidity | Exchange tradeable | Premature closure penalty |
| Expense ratio | Very low (0.0005%) | None (no cost) |
| Tax | LTCG (historically lower) | Slab rate on interest |

Practical Example

Smita invests Rs 5 lakh in Bharat Bond ETF 2032 series in 2024. The expected yield to maturity is approximately 7.5%. She holds until 2032 (8 years). She receives approximately Rs 9.2 lakh, reflecting the compounded yield. If she had put the same amount in an FD at 7%, her post-tax return at 30% slab would have been substantially lower.

Key Takeaways

– Bharat Bond ETF is a target maturity ETF investing in AAA-rated PSU bonds
– Available in multiple series with defined maturity years
– Very low expense ratio (0.0005%) makes it cost-efficient
– Tax treatment (check post-April 2023 rules) may be more favourable than FDs for long-term investors
– A Fund of Fund (FoF) version is available for investors without demat accounts