Bharat Bond ETF – Series II
Bharat Bond ETF is an open ended Target Maturity Exchange Traded Bond Fund predominately investing in constituents of Nifty BHARAT Bond Index – April 2025 & April 2031.
BHARAT Bond ETF is an Initiative by Government of India to cater to the borrowing requirements of Pubic Sector by pooling investments from retail, HNI and institutional investors. Edelweiss Asset Management has been given the mandate to manage the BHARAT Bond ETF program
A Target Maturity Bond ETF is an exchange traded fund which has a defined fixed maturity, and invests in bonds with similar maturity. This enables it to combine features of bond and mutual funds both. In these ETF’s the underlying securities are held until the maturity of the Scheme.
Features
The ETF can invest only in high quality “AAA” rated bonds of CPSEs/CPSUs/CPFIs and other Government organizations.
The ETF has a Fixed Maturity tenure and will invest in bonds which have similar maturity as that of the Bharat Bond Index.
Index and its methodology
Each BHARAT Bond ETF will have a dedicated underlying Index. The second launch is proposed to have two schemes with 5 year & 11-year, maturity respectively.
Edelweiss AMC has appointed NSE Indices Limited for creation and maintenance of the Index
| Fund | Underlying Index |
| Bharat Bond ETF – April 2025 | Nifty BHARAT Bond Index – April 2025 |
| Bharat Bond ETF – April 2031 | Nifty BHARAT Bond Index – April 2031 |
The Nifty BHARAT Bond Index series measures the performance of portfolio of AAA rated bonds issued by government owned entities maturing in a specific year.
Each index in the series holds underlying bonds issued by AAA rated government owned entities maturing in a specific year, at which point each index in the series matures.
Index Methodology
The Index will follow below mentioned criteria for inclusion of issuers and their bonds:
Selection:
Issuers that are CPSEs/CPSUs/CPFIs and other Government organizations are eligible to be part of the Index. Bonds issued by these issuers should be rated “AAA”. Further, issuers should have total outstanding bonds of minimum Rs. 100 crores.
Weight Allocation:
Weight of bonds in the index will be based on total outstanding amount of each issuer. Single issuer weight will be capped at 15%.
Index Rebalancing:
Index will be rebalanced/reconstituted at the end of each calendar quarter.
Apart from scheduled review, an ad-hoc rebalancing may be undertaken in case:
- Bonds of existing issuers to be excluded from an index in the series as per the following exclusion schedule:
| Scenario | Bonds to be excluded | |
| On next rebalance date | Within 5 days | |
| Issuer rating is downgraded below AAA and is investment grade | ✔ | |
| Issuer rating is downgraded below investment grade | ✔ | |
| CPSE/CPFI/GOI Statutory Body loses its current status and issuer rating is investment grade | ✔ | |
| CPSE/CPFI/GOI Statutory Body loses its current status and issuer rating falls below investment grade | ✔ | |
*investment grade as defined by SEBI
- Bonds of new issuer to be included in an index in the series as and when advised by Department of Investment and Public Asset Management (DIPAM)
To know more about the Nifty Bharat Bond Index Series click here
Advantages
- The ETF gives you an easy access to invest in Good Quality Public sector Bonds.
- Better liquidity than Bonds available in the Debt/Bond Market.
- Very Low Cost – The fund will be managed at very low cost
- upto 10,000 crore – 0.0005% p.a.
- Next 10,001 crore to 20,000 – 0.0004%
- Over 20,001 crores – 0.0001% p.a.
- Lower Tax – Taxed at 20% post indexation benefits
- No lock-in – Exchange provides the liquidity
Following table shows comparison of different investment avenues.
| Bond ETFs | Bond ETF
FOF |
Debt Mutual Funds | Individual Bonds | |
| Return Predictability | ✔ | ✔ | ✔ | |
| Liquidity | ✔ | ✔ | ✔ | |
| Diversification | ✔ | ✔ | ✔ | |
| Defined Maturity with final money distribution at Maturity | ✔ | ✔ | ✔ | |
| Tax Efficiency – Indexation | ✔ | ✔ | ✔ |
Risks Involved
The product has ‘NO’ assured returns. During the investment period, value of investments can go up or down depending on market conditions, and are dependent on interest rates movements in the economy. However, if an investor stays invested till maturity, then return can be inline with the yield of the portfolio at the time of investments.
Price Risk: The ETF has a target maturity. This means the initial yield is locked if the investment is continued till maturity. However, if you withdraw/redeem before maturity, price risk will remain.
Each bond issuer of the Index is a Public Sector Company with a credit rating of AAA. Credit risk, therefore, is relatively lower.
Reinvestment Risk: Coupons/interest received by the fund shall be reinvested in the similar underlying assets as that of the Index/portfolio.
Liquidity Risk: The AMC will appoint Authorized Participants to provide liquidity on the exchanges. Hence, investors can buy/sell their units on exchange anytime during the trading hour
Recommendation
The underlying index yield on 30th June 2020 was 5.71% for ETF –April 2025 & 6.82% for the ETF – April 2031. Considering the benefit of Indexation one can assume a yield of close to 5.40% and 6.30% p.a. for the ETFs respectively if held till maturity.
The ETF is a good option if you are looking for the debt allocation in your long term portfolio. The Long term yield looks attractive compared to other instruments available especially for the investors in higher tax brackets. It is a liquid and transparent product with a very low cost.
Retail Investors can invest in the Bharat Bond FOF which will have an option to Invest via SIP / STP route also.
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