Bharat Bond ETF’s fourth tranche opens today. Should you subscribe?

This new Bharat Bond ETF and Bharat Bond Fund of Fund (FOF) series will mature in April 2033. Through the launch of this new series in the fourth tranche, the government proposes to raise an initial amount of ₹1,000 crore with a green shoe option of ₹4,000 crore. 

A central government initiative, Bharat Bond ETF invests only in ‘AAA’-rated bonds of public sector companies. The funds raised would be utilised for undertaking capital expenditures by central public sector enterprises (CPSEs). It also helps them in meeting their capital expenditure needs.

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

Bharat bond ETFs provide higher degree of certainty of returns (if held-to maturity) with a higher safety of capital as it invests in government owned AAA rated public sector bonds. 

“The bond ETF will enjoy tax advantage in the form of indexation benefit similar to debt mutual funds (20% with indexation). While the actual tax implication depends on future inflation index, indicative after tax yield could be ~6.9%. It is tax efficient compared to traditional investment avenues,” said ICICI Securities in a note while giving ‘Subscribe’ tag. 

Edelweiss Asset Management Company (AMC) is the fund manager of the scheme and the fund house also launched a ‘fund of fund’ (FoF) for this ETF to facilitate retail investors to buy/sell like a normal mutual fund.

In December last year, the government had launched the third tranche with a base issue size of ₹1,000 crore. It was over-subscribed 6.2 times with bids worth ₹6,200 crore coming in. The ETF has raised ₹29,600 crore in its three offerings so far.