Explainer: What is Bond ETF and how it works?

Bond ETF: The government has launched the fourth tranche of Bharat Bond ETF, India's first corporate bond exchange-traded fund. The new fund offer will remain open for subscription till December 8. This new Bharat Bond ETF and Bharat Bond Fund of Fund (FOF) series will mature in April 2033. But do you know what exactly a Bond ETF is? As more and more people are talking about Bond ETFs right now, here in this article, we will tell you every detail related to it.

What Is Bond ETF?

Bond ETFs are a type of exchange-traded fund (ETF) that exclusively invests in bonds. The Bond ETFs invest only in AAA-rated corporate bonds issued by state-run companies. 

How To Buy ETFs?

Just like mutual funds, one can buy and sell ETF units through a Demat account. However, in this case, you will have to pay broker commissions along with some other charges. 

How does Bond ETF work?

Just like stock ETFs, bond ETFs too trade on a major exchange. But, bond ETFs are more volatile. In the last one year, Bharat Bond ETFs have generated returns in the range of 2 to 4 per cent. 

Tax on ETFs?

There are a lot of similarities between ETFs and MFs and this continues when it comes to the taxation of ETFs. While there is no tax on long-term investments - more than a year, there is a 10 per cent capital gains tax on short-term investments. 

When Was India's First Corporate Bond Launched?

The first offering of the ETF was launched in late 2019. Since its launch in 2019, the asset under management (AUM) of the ETF has crossed the Rs 50,000 crore-mark. So far, five maturities of Bharat Bond ETFs have been launched -- 2023, 2025, 2030, 2031, & 2032