AAA PSUs is the universe of the Bharat Bond ETF and are cheaper than the mutual funds, says Radhika Gupta, Chief Executive Officer, Edelweiss Asset Management Limited. Radhika Gupta during an interview with Swati Khandelwal said, "these bonds are cheapest mutual fund product in India and the cheapest debt fund product in the world probably. Edited Excerpts:
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Can you tell us about the features of the Bharat Bond ETF and how it will work? What are the benefits of investing in the bond instead of a pure debt fund or a fixed deposit?
It will benefit in three ways when compared with the mutual fund and they are:
(i) There is no certainty about the credit risk in the case of the mutual funds but in the case of Bharat Bond, you have the certainty that AAA public sector companies are part of the universe, which is a big comfort zone.
(ii) This, Bharat Bond ETF, is cheaper than the mutual fund, as an expense ratio of 50bps is present in mutual funds on an average, while expense ratio in the bond stands at 0.0005, which makes it the cheapest debt fund of in the world probably but the cheapest mutual fund in India. Buying the actual bond is more expensive than buying the Bharat Bond ETF. The government is offering a cost-effective product for investors. As far as Fixed Deposits(FD) is concerned, an investor will be benefitted in two ways and they are (i) Investors money remains locked for a certain period in FD, where redeeming it before time, i.e. redeeming a 3-year FD in 1-year, will attract premature and breakage penalties and many more. Plus, the rate is low.
(ii) Investors are supposed to pay full tax in the case of FD, which is a marginal rate of tax. However, taxation in the case of Bharat Bond is indexation, and it provides 20% capital gains over inflation. So, you have a return of 7.50% and inflation stands nearly 4% then you will have to pay 20% tax on 3.50%, which is about 0.7%. Thus your effective tax rate at Bharat Bond will restrict between 8-12% while full tax is enforced in the case of the FD. So, it will bring huge benefit to the investors.
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No exit load is available for retail investors but can you tell us about the risk areas, where the investor should focus?
Fixed income comes only with two risks in every product and they are (i) Credit Risk and (ii) Interest Rate Risk. I won't say that the credit growth rate has gone in the case of Bharat Bond ETF but it has been reduced to the minimum level to which any debt product associated with AAA PSUs can be reduced to. Interest rate risk will depend on the fluctuations on the bond price when the interest rates will move as bond prices fluctuate in accordance with the fluctuation in rates. It can be addressed if you hold it for 3-10years then the interest rate risk will be low as it happens in the case of the fixed maturity plans (FMP) and FD because you will be holding the bond for the period. But any sharp movement in interest rate then there can be a movement and it can happen in every debt fund. But, holding it till it matures will reduce the risk to a greater extent.
What options are available for NRIs' who want to invest in it?
I would like to speak about the two options that are available for both domestic as well as NRI investors. Two options are available and they are ETF and Fund of Fund (FoF). FoF is for those who don't have any Demat account or don't want to choose the ETF path. Both paths are cost-effective. NRIs can invest in both ETF and FoF. Those who have NRE/NRO Demat account can invest through the same and those without it can come through FoF. So, we highly encourage NRIs to come forward and invest in it.
What tax benefits will be available to investors?
If an investment is made in an FD or a fully-taxable bond then I would like to remind that bonds are completely taxable while TDS is deducted in the case of the FD. But in the case of Bharat Bond, you will have to pay the capital gains tax on maturity, where the effective tax rate is around 10% while FD is a fully taxable thing. So, this is beneficial for those who are in the higher tax bracket, anything above 10%. Our post-tax math for our 3-year and 10-year product Vs FD suggests our investors will gain a net profit of about 8% when compared with FD.
What is your view on the liquidity situation of the Indian bond market and the extent to which Bharat Bond ETF will solve the problem?
Bharat Bond ETF was launched by the government to increase liquidity and retail participation in the debt market. Few retail investors participate in the retail market. Secondly, buying bonds of a company like NHAI is a difficult task for a retail investor because one will have to invest around Rs10 lakh for to get it. So, Bharat Bond addresses these issues.
FAQs
As an initiative from the Government, these ETFs undergo stringent scrutiny from regulatory bodies, thus ensuring that your money is parked in a transparent and secure vehicle. Additionally, Bharat bond ETFs are also very tax-efficient in nature, making it a great addition to your portfolio.
Is bharat bond ETF tax free? ›
Taxation Of Bharat Bond ETF
Currently, there is no indexation benefit for investors. Any capital gains upon redemption will be added to your total income, resulting in tax payments based on your income tax bracket. Whether you're a 30% or 20% taxpayer, the tax rate will apply accordingly.
How much can I invest in Bharat Bond ETF? ›
BHARAT Bond ETF - April 2030 - Growth Investment Details
| Minimum Investment (Rs.) | 1,000.00 |
|---|
| Minimum Additional Investment (Rs.) | - |
| Minimum SIP Investment (Rs.) | - |
| Minimum Withdrawal (Rs.) | - |
| Exit Load | 0% |
Radhika Gupta, the MD and CEO of Edelweiss Mutual Fund, is known for her insightful posts on finance and investments.
What are the disadvantages of Bharat bond? ›
On the flip side, the Bharat Bond ETFs are so far restricted to debt from PSUs and, hence, have lower yields than debt funds which invest in corporate debt. They are also marked-to-market and, thus, anyone who is unable to hold to maturity can see sharp price movements on account of change in interest rates.
Is Bharat bond better than FD? ›
Bonds offer higher returns on maturity than FDs. FDs are better if you are looking for long-term, risk-free, and easily accessible investment instruments. Depending upon your risk appetite, you must make the decision to choose between FDs or bonds.
What is the return rate of Bharat bond ETF? ›
Returns (NAV as on 29th April, 2024)
| Period Invested for | ₹10000 Invested on | Annualised Returns |
|---|
| 1 Year | 28-Apr-23 | 6.75% |
| 2 Year | 29-Apr-22 | 6.72% |
| 3 Year | 29-Apr-21 | 5.89% |
| Since Inception | 26-Dec-19 | 7.26% |
5 more rowsChart
| Scheme | Scheme Benchmark NIFTY BHARAT Bond Index - April 2030 |
|---|
| 1 Year | 6.91% | ₹10,686 |
| 3 Year | 5.89% | ₹11,822 |
| 5 Year | NA | NA |
| Since Inception - Existing Plan | 7.28% | ₹13,558 |
1 more rowBond ETFs can lose value due to several factors, including changes in interest rates, credit risk, and market sentiment. When interest rates rise, the prices of existing bonds, which have lower interest rates compared to new bonds, tend to fall.
How safe is Bharat Bond? ›
A Bharat Bond ETF has a low-risk profile because it primarily invests in debt securities of public sector enterprises with AAA ratings. Retail investors can purchase these Bharat Bond ETFs for a minimum of Rs. 1,000 with an expense ratio of 0.0005%.
Bharat Bond ETF - April 2032 has not declared any dividend for the last several years.
How do I exit from Bharat Bond? ›
BHARAT Bond ETFs don't have a lock-in. Investors are free to invest and withdraw as they wish. However, for BHARAT Bond FoFs, exit load (0.1%) applies if withdrawal is done within 30 days from the date of investment. No exit load is applicable on BHARAT Bond ETFs.
Who is Edelweiss owned by? ›
Rashesh Shah (born 30 September 1963) is an Indian businessman and the chairman and CEO of the Edelweiss Group, one of India's leading diversified financial services conglomerates. He is also the co-founder of Edelweiss Financial Services Limited (EFSL).
Who is Radhika Gupta in Shark Tank? ›
Radhika Gupta, the Managing Director and CEO of Edelweiss Mutual Fund joined the panel of Shark Tank India Season 3 as one of the six new Sharks. The business tycoon faced several ups and downs in her entrepreneurial journey.
What is the net worth of Radhika Gupta? ›
Radhika Gupta, the new judge on Shark Tank India season 3, has already grabbed eyeballs for bringing her 1-year-old son on the set, setting up working mother goals for everyone. This season, the new entrant on the panel is the CEO of Edelweiss Mutual Fund and enjoys a humble net worth of 41 crore.
Which is the best Bharat bond ETF? ›
Asset Allocation
| Scheme Name | NAV(Rs./Unit) | 1Y |
|---|
| BHARAT Bond ETF - April 2025 - Growth | 1,204.02 | 7.16 |
| Axis Nifty SDL September 2026 Debt Index Fund Regular - Growth | 11.02 | 6.51 |
| BHARAT Bond FOF - April 2025 Regular - Growth | 11.99 | 7.03 |
| UTI CRISIL SDL Maturity June 2027 Index Fund Regular - Growth | 10.89 | 6.46 |
1 more rowIn other words, bond ETFs are at risk if the borrower defaults as this means they may not pay the entire amount of the bond back. While there is no debt to an equity ETF, the underlying companies can still incur losses and lose value.
Is it safe to invest in Indian government bonds? ›
Government bond or a g-sec is most secure in terms of default risk for investors. This is considered a risk free investment in common investing parlance since the government is never going to default.
Is it safe to invest in India bonds? ›
Bonds issued by the Central and State Governments are called Government security. Since these are issued by Governments they carry no credit risk. These are one of the safest types of Investment options in India to earn periodic interests and principal on maturity. These bonds pay interest on semi-annual basis.
