Bharat Bond ETF: 5 reasons to invest; check interest rate, risk, tax benefit, expense ratio and maturity

Bharat Bond ETF April 2033 Returns, Maturity: The government has launched another tranche of its flagship Bharat Bond ETF (exchange-traded fund). It is India's first corporate bond exchange-traded fund. The new ETF is an 11-year product maturing in April 2033. It is referred to as Bharat Bond ETF - April 2033. The new fund offer will remain open for subscription till December 8. Edelweiss AMC is managing the Bharat Bond ETF.

Bond ETFs are a type of ETF that exclusively invests in bonds. The underlying index consists of AAA-rated public sector undertakings, meaning it will invest only in AAA-rated corporate bonds issued by state-run companies. 

The government had launched the first offering of the ETF in 2019. Since then, the asset under management (AUM) of the ETF has crossed the Rs 50,000 crore mark. Through the fourth tranche, the government aims to raise Rs 1,000 crore. The proceeds will be used for undertaking capital expenditures by government enterprises and also helps in meeting their capital expenditure needs.

So far, five maturities of Bharat Bond ETFs have been launched -- 2023, 2025, 2030, 2031, & 2032. 

It should be noted that the Bharat Bond ETF is a target-maturity bond ETF. It means that it has defined fixed maturity and invests in bonds with a similar maturity. The new ETF will track the newly introduced Nifty BHARAT Bond Index in April 2032.

5 reasons to invest in Bharat Bond ETF

1. Higher return

Bharat bond ETFs provide higher degree of certainty of returns if held till maturity. The latest offer has an indicative yield of 7.5 per cent with a maturity date of April 18, 2033.

2. Safety

It offers a higher safety of capital as it invests in government-owned AAA rated public sector bonds. It provides predictable and stable returns with low credit risk.

3. Liquidity

Buy/sell on exchange any time or through AMC in specific basket size. Edelweiss has also come out with a Bharat Bond FoF. It enables retail investors to enter and exit just like mutual funds

4. Tax Efficient

The bond ETF will enjoy tax advantage in the form of indexation benefits similar to debt mutual funds. Indexation refers to recalculating the value of the investment of purchase price after adjusting for the inflation index. The actual tax implication, however, will depend on the future inflation index published by the Income Tax Department. This prevents the value of an investment by lowering the adverse impact due to inflation or price hike. 

5. Low Expense Ratio 

The expense ratio of the ETF is minimal at 0.0005 per cent. An expense ratio is nothing but a certain amount that is used towards administrative and other operating expenses.

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