After successful commencement of Bharat 22 ETF (Exchange Traded Fund for investment in Equities), Union Cabinet approved launch of Exchange Traded Fund for investment in Bonds under the name of Bharat Bond ETF on 4th Dec 2019 to deepen the bond market and bring in retail participation in this space. This Bond ETF will provide additional money for PSUs and it will be first of its kind.

Let’s first understands what Bond ETF are?

Bond ETFs are Exchange Traded Funds which invests in basket of bonds. These are just like Bond Mutual Funds which are tradable / listed in stock market. Exchange tradability provides extra liquidity to such bonds.

Now, how it will benefit if one makes investment through this

1. Maturity, Minimum Investment  & Expense Ratio :

Initially Bharat Bond ETF will have two maturity 3 & 10 years and will be listed on the exchanges. Hence, it can be bought and sold like shares in the stock market.

In terms of minimum investment, retail investors can participate & invest with amount starting from Rs.1000/-. This will be advantageous for small investors who want to diversify their portfolio with Fixed Income Instruments.

Expense ratio / Cost Structure associated are miniscule at 0.0005%.

2.Risk to default is negligible:

Post IL&FS default, many investors lost their money which was invested in Fixed Income instruments either through MF or directly. So it becomes important to know where this fund is investing.

Bharat Bond ETF will invest in bonds issued by Central PSUs or any other government organization bonds. Sovereign backing & tradability in exchange will provide safety and liquidity respectively for investor’s money.

3.Taxation Benefit :

Coupon received from Bharat Bond ETF will be taxed as per investor’s tax slab, but it will provide tax benefit due to indexation process (adjustment of purchase price of investment for inflation) which reduce effective tax rate on capital gains.

Long-term capital gains (holding period of over 3 years) on bond funds are taxed at 20% after indexation.Should Invest or Not?

With above discussed rewards, Bharat Bond ETF is one of its kinds and can act as topping on cake in respect to one’s portfolio. So one should allocate some proportion of their investments / savings in this instrument.

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