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This fund currently is managed by the Edelweiss Asset Management. (Representative Image)

Bharat Bond ETF provides three of the best features i.e., Mutual Fund, ETFs and bonds together. For any investor, it is a win-win financial product that provides safety since it is made up of a high-quality basket of public-sector businesses, as well as liquidity and access at a considerably lower ticket size than individual bonds.

That said, Bharat Bond ETF is also India’s cheapest mutual fund product and the world’s cheapest bond ETF/fund as it is a Government of India initiative to look after borrowing requirements of central public sector enterprises by pooling investment from the retail and institutional investors. It is managed at a low cost of 0.0005% per annum i.e., for maximum Rs 1 for Rs. 2,00,000 worth of investment). This fund currently is managed by the Edelweiss Asset Management.

Who can invest?

Unlike the Central Public Sector Enterprise (CPSE) ETF and Bharat 22 ETF (Equity ETF), which saw a large number of investors taking advantage of the discount and ride the PSU equity theme, this Bharat Bond ETF caters to investors who are looking for limited returns.

This bond has two maturity options. The bond with 3-years maturity is structured as a closed-ended fund would be a secure choice for investors who want to hold until maturity to prevent periodic changes in Net Asset Values (NAVs). This 3-year variant’s returns might be compared to Banking & PSU debt funds, which have a comparable portfolio holding and an average term of 2-4 years. Whereas the bond with 10-year maturity which is for a longer duration would naturally have a higher duration risk and should be considered by knowledgeable investors who want to take risks on long-term bets. This fund can be comparable to medium to long-term duration funds.

That said, Bharat Bond ETF invests only in AAA-rated public sector bonds.  The ETF with a 3-year maturity follows Nifty BHARAT Bond Index –April 2023 and the bond with 10-year maturity follows the Nifty BHARAT Bond Index – April 2030.

Although one important point to note is that although the fund has different maturity, the investor can withdraw or sell the units on the exchange at the applicate rate as there is no lock-in period. As per the risk-o-meter parameter of this product is suitable for investors who are looking for moderate risk.

Further, there is ‘NO’ assured returns as the value of the investment may increase or decrease depending on market conditions as well as interest rate movement. Edelweiss Asset Management launched the second tranche of Bharat Bond ETF in July 2020 with two new series having maturities of April 2025 and April 2031.

Process

This fund is for resident Indians as well as non-resident Indians (NRIs). Further Investors who hold a Demat account can invest in this ETF and those who do not have a demat account can invest in the Bharat Bond Fund of Funds, which has a comparable maturity as the underlying ETF.

Tax Treatment

When it comes to the taxation aspect, Short Term Capital Gains (STCG) tax is imposed on an individual who invests in a 3-year maturity plan, depending on his or her income bracket. If the investor invests in a 10-year maturity plan, however, a 20% Long Term Capital Gains (LTCG) tax is imposed after indexation.