The third tranche of Bharat Bond ETF will launch tomorrow. Should you subscribe?

Bharat Bond ETF is an exchange traded fund that invests in debt of public sector companies. The ETF currently invests only in ‘AAA’ rated bonds of public sector companies.

“The underlying index comprises AAA-rated PSUs with an indicative yield of 6.87%, a maturity date of April 15, 2032, and a revised tenure of 6.74 years. The Bond ETF will enjoy the same tax benefits as indexation benefits. Debt Mutual Funds (with indexation 20%). While the actual tax implication depends on the future inflation index, the indication after tax yield could be ~6.4%,” ICICI Securities said in a note.

Bharat Bond ETF offers certainty of returns (if held till maturity) with high safety of capital as it invests in government owned AAA rated public sector bonds. With the current low interest rate regime, which is likely to continue, some allocation may be considered by investors who want to lock in safe and predictable returns and are not concerned about intermittent interest rate volatility.

Recommending to subscribe, ICICI Securities said a corporate bond fund (exposure to AAA-rated papers) is currently offering a yield (net of expenses) of less than 5.0%. Therefore, the 2.0% higher return offered by Bharat Bond ETF “is an excellent investment opportunity in the current environment, even after considering any increase in interest rates.”

Edelweiss AMC is managing this ETF and the fund house has also launched a ‘Fund of Funds’ (FOF) for this ETF to facilitate retail investors to buy/sell like normal mutual funds. For retail investors, this Bharat Bond FOF is better suited in terms of convenience and liquidity, the note highlighted.

The second tranche of Bharat Bond ETF was launched in July 2020 and was oversubscribed by almost 3 times. 11,000 crores. it almost brought 12,400 crore in its first offering in December 2019.