Third tranche of Bharat Bond ETF is launching tomorrow – Should you invest?

Bharat Bond Exchange Traded Fund (ETF) is all set to launch its third tranche. So, should you consider investing? Let’s find out.

Bharat Bond Exchange Traded Fund (ETF) is all set to launch its third tranche tomorrow, December 3, 2021. With this, it is aiming to raise around Rs 5,000 crore with an indicative yield of 6.8%. According to the NSE’s Bharat Bond Target Maturity Index, all 10-year papers that are set to mature in 2032 would be a part of the third tranche of Bharat Bond ETF.

Bharat Bond ETF is an initiative of the Department of Investment and Public Asset Management, Ministry of Finance in collaboration with Edelweiss Asset Management which is mandated to manage this fund.

This ETF tracks the Nifty Bharat Bond Index by investing in AAA-rated public sector bonds. Its maturity date would be April 15, 2032, with a modified duration work out to be 6.74 years. It enjoys tax benefits similar to that of debt mutual funds where if the fund is held for three years or more is considered as long-term and enjoys 20% tax with indexation benefit. Although the actual taxable amount would depend on the future inflation index, its indicative post-tax yield works out to be approximately 6.4%.

Should you invest?

If you have any financial goals that are expected in the year 2032, then you can consider this as the debt part of your portfolio. This fund is most likely be suitable for those who wish to hold it till maturity as it would help you negate the interest rate risk and you would also be able to estimate the maturity amount. However, if you are an active investor and are looking for capital appreciation opportunities, then you should invest in this with caution. Though, in the short-term, it might work in your favour as presently the yields on corporate bond funds are less than 5% and the yield offered by Bharat Bond ETF is almost 2% higher. However, going ahead it is likely that the rate of interest would rise and, in such a case, the value of this fund might fall. Therefore, in the present scenario, it would be prudent to invest in them if you are likely to hold them till maturity.