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Bharat Bond ETF

by Money Puzzle   ·  December 10, 2019   ·  

Bharat Bond ETF

by Money Puzzle   ·  December 10, 2019   ·  

Radhika Gupta spoke to MoneyPuzzle about this latest concept, how it works and what the benefits are. Listen in to know more about the Bharat Bond ETF and how it can fit into your investment portfolio.

If you have watched the video, you know our thoughts on this financial investment.

It is a good option for investors to build their long-term debt portfolio. A quick summary of the main points and benefits is given below.

10 things you need to know

  1. It’s a mutual fund that invests in corporate bonds.
  2. An exchange traded fund is mandatorily listed on stock exchanges and there is a daily unit price for such funds.
  3. Unlike other debt funds, there is no designated fund manager, the portfolio will mirror a listed index made up of these corporate bonds.
  4. The first issue of the Bharat Bond ETF will have bonds issued by public sector entities owned by the Government of India.
  5. The ETF portfolio will primarily earn returns in the form of interest received on the bonds in the portfolio.
  6. An ETF requires investors to have a demat account. This fund will also be available in a non demat fund of funds structure. In the latter you can make SIP investments too.
  7.  There are two series; 3-year closed end and 10-year closed end.
  8. Closed end means the fund will not take fresh inflows during the tenure and will return money to investors at the end of the tenure.
  9. Given that it is an ETF, you can sell your holding on exchanges (just like you would a sell equity shares) if you wish to before the tenure ends.
  10. Gains from sale will be taxed as capital gains. Short term capital gains (sold before 3 years) are calculated at your marginal rate of income tax. Long term capital gains (sold after 3 years) is calculated at a rate of 20% on indexed cost (after increasing the original cost by three years of annual inflation).

Why you should consider investing?

  1. Good long-term investment for your overall debt allocation
  2. There is benefit of safety in returns
  3. There is benefit of transparency of holdings and yield
  4. There is benefit of flexibility and liquidity
  5. There is benefit of tax efficiency
  6. There is benefit of low cost

At current yield of 7.63% for the ten-year Bharat Bond Index and 6.71% for the 3-year Bharat Bond index, pre tax returns itself are better than fixed deposits with public sector banks.

Watch the video again if there are doubts and do write into us with your queries.

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