Should I invest in Bharat Bond ETF NFO? Is the Bharat Bond Fund is safe? Is it a good idea to invest in Bond Fund ETF? What is the ideal time period for investing?
Let us discuss few more questions here – Does your trading account have cash lying without any interest? Your Fixed Deposit not earning interest? You are looking for safe and better returns without tax implications?
Bharat Bond – It is an Bond Fund ETF (Exchange traded fund) people who donot have a trading account, can invest through F-O-F route, (Fund of Fund). Government in a bid to raise money as debt, issues various bonds for its PSU Companies. This ETF is a route created for investors so that they can buy a bouquet of bonds at one go, without having to choose each one separately. The fund has a target maturity date, so once the ETF investment matures, you will get the money back in your designated Bank account, while you are free to withdraw funds whenever you wish to and you may choose to partially withdraw funds if you wish to.
Bharat Bond ETF invests in PSU Bonds, all with highest credit rating, in layman language as good as a State Bank of India fixed deposit, only with no-lock in period. You can buy today, sell tomorrow, quite like a Savings Bank account earning the interest on money for the period. Even if it is one day. As the bonds are of high grade PSU Companies, it is a safe option. As the demand in these Bonds remain high, the return is quite stable. The fund is passively managed with minimal interference, it follows the Bharat Bond index and replicates the return.
This is the second tranche II of Bharat Bond ETF, the New Bharat Bond series details-
Details of the NFO (New Fund offer) – Two Bharat Bond ETF NFOs to open from 14 July.
NFO Period – Launch – 14th July – Closes on – 17th July
Options – It has two options
1. April 2031 maturity period (11 years) – yield to maturity – 6.54%~
2. April 2025 Maturity (5 years) – yield to maturity – 5.46% ~
Investment Manager – Edelweiss Mutual Fund
How to invest – If you are comfortable with online transaction, and like doing yourself. You can apply for both FOF and ETF
Visit here TO INVEST Online – https://www.bharatbond.in/ (Invest Now section)
Minimum Investment – Rs. 1000/- and multiple of Rs. 1 thereafter.
Modes of Payment – Net Banking and UPI
Lock in period – No lock-in period, as soon as it is listed, it can be tarded on exchanges. Incase of F-O-F, it will have 0.10% exit load till 30 days, post which no exit load will be there.
Risks – Debt mfs have four prominent risks – Price Risk, Credit Risk, Reinvestment Risk and Liquidity Risk. The risks are mitigated by a few initiatives claims the ETF Managers.
Price Risk: If you buy the NFO now and hold on to it till the maturity, you would get a return as mentioned above. But if you transact in secondary market, (Buy/ sell) price risk will remain. Credit Risk – The Bonds are triple rated securities by PSUs, the risk is almost Nil. Liquidity Risk – Anyone can sell/ buy the ETFs at stock exchange NSE, and as it is considered safest debt instrument, demand likely to be there always. Reinvestment Risk: The income generated as interest will be invested in assets similar to that of existing portfolio.
The details of the Bharat Bond ETF – Series I
This Fund invests in short term, medium term and long term debt papers, maturing before the Fund maturity date. As the interest rates have plunged in 2020, since the last Bharat Bond-Series I launched in 2019 , the bond prices went high on the secondary market, pulling the yield curve low. If you wish to invest in this, it would be a good idea to invest in the second series and NFO in particular to lock-in the best return on your investment.
So to say, if you wish to buy the existing Bharat Bond ETF. This one also has target maturity date, if you invest now and keep it till maturity, you are likely to get approximately above mentioned return
Reasons why you Should Invest in Bharat Bond ETF series II
- It is a good investment option for an investor/ trader, who want to park the idle cash lying in trading account to earn some interest, as it wont generate any income lying idle on the trading account. If you put the money in this investment option, you will earn some extra cash till you plan how to use the money.
- You need to consider a few factors while deciding what to invest in. This fund can be used as liquid money for contigency/ regular use you may require. Investing this category is ideal for 1 – 2 years horizon, and can also sell whenever you wish. This could be part of you short term goals, for unplanned expenses in near term.
- You are not yet sure of how ETF works or Equity/ MF trading works, this is your time, you can simply put some money and try out yourself without risking
- This money is liquid, more than large Bank FDs, and offers at least 1% extra return compared to your FDs in SBI/ HDFC Banks.
- If you keep the money for more than 3 years, the tax implication is very low, with Long term capital gain benefit with indexation on Debt Funds.
- As mentioned above, Bharat Bond-Series I is trading higher as Bond prices went high on the secondary market, pulling the yield curve low, so if you wish to invest in this, it would be a good idea to invest in the second series and NFO in particular to lock-in the best return on your investment. The New fund offers higher yield compared to series I
ETF cost is very very low, Fund of Fund has comparative high price but still it is negligible.
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I am not a SEBI Registered investment advisor, I write based on my own understanding and for the passion in financial literacy. Take your own call basis your judgement/ your advisor. You may also consider the review on websites like Value research and other sites too.
