Should you invest in Bharat Bond ETF? Here is all you need to know

HIGHLIGHTS: This bond ETF is taxed like a debt mutual fund. That is, if the investment is kept for more than three years, then there is a tax of 20 percent with indexation benefit.

Bharat Bond ETF is the first bond exchange traded fund. It has opened for investment on Thursday. This ETF will invest in AAA rated bonds of public sector companies. It offers two investment options of three-year and 10-year fixed maturity periods. Before deciding to invest in this ETF, you should know about a few things:

How will tax be levied?

This bond ETF is taxed like a debt mutual fund. That is, if the investment is kept for more than three years, then there is a tax of 20 percent with indexation benefit. In the three-year option, you will get about 6.3 percent return. At the same time, 7 percent interest will be given in the 10-year option.

What's in it for small investors?

The management of this ETF is at Edelweiss AMC. It has also launched 'Fund of Fund' (FOF) for this fund. This will allow retail investors to invest like normal mutual funds. For small investors, this FOF is better in terms of convenience and liquidity.

Should You Invest?

According to ICICI Direct report, a bond-like structure with fixed maturity gives stable returns that can be estimated. It is quite strong on the safety aspect. The reason is that it invests only in public sector bonds. The expense ratio for ETFs is a meager 0.005 percent compared to other mutual funds.

Which other product can it be compared to?

Bharat Bond ETF has a maturity period of 2023 and 2030. In this context, it can be compared with fixed maturity plans and banking and PSU funds. Bond ETFs have a much lower cost compared to debt mutual funds.

How much minimum investment is needed?

At least investors can invest Rs 1,000 in Bharat Bond ETF. After this, you can invest in multiple of Rs 1,000.

Will there be any exit load?

On completion of 30 days from the date of allotment or before it, the investment load will be 0.10%. However, there will be no charge for redemption / switching on completion of 30 days.

Which other major features should be kept in mind?

The bonds included in the index will be re-balanced on a quarterly basis. Bharat Bond Fund of Fund has been launched for investors who do not have demat account. The investment in each bond shall not exceed 15 percent of the index.

How much yield can be expected?

The yield (bond return) in the three-year option is about 6.7 percent. While the yield in the 10-year instrument is 7.6 percent.

Source: Web