Bharat Bond ETF is India’s first corporate debt ETF which invests in bonds of top PSU Companies. Series 1 launched in December 2019 with maturities 2023 and 2030. Series 2 is a new offering with maturities — 2025 and 2031.

Returns

The current indicative yields are 5.43% (2025) and 6.53% (2031) respectively (as on 13 July 2020)
A defined-maturity feature provides predictable returns if held till the specified maturity (5 or 11 years)
Very low cost of 0.0005%, or INR 1 per 2 lakh investment

Transferability

Traded on the exchange with a NAV (Net Asset Value)
No lock-ins

Taxes

Taxed like other debt funds (20% after three years with indexation benefits)

Risks

Holding the ETF to maturity removes interest rate risk
ETF invests only in bonds of AAA-rated PSU companies — almost zero credit risk

We did not enter Series 1 because we were a little cautious — we are more confident now. We like its quasi-GILT risk outlook with a fixed maturity. It is now a part of our portfolios. A comparison to FDs and the constituents of the ETF are attached below:

Image for post — Higher post-tax returns across the ETF; Assumptions — Same tenure and expected return for FD and Bond ETF. A rate of inflation of 4%. Reinvested FD interest income at post-tax return.

The mandate is to stick to AAA-rated PSU companies that comprise the Bharat Bond Index. So, if there is a downgrade, it will be moved out from the Index and the ETF.