Bharat Bond Fund of Fund (FoF) – Is it worth Investing?
Bharat Bond Fund of Fund (FoF) Review
Bharat Bond ETF is creating some buzz in the stock market now. However the major limitation it has is that one need to have a demat account to invest in this ETF. To overcome this, Edelweiss AMC has come up with Bharat Bond Fund Fund of Funds (FoF), mutual fund scheme where one can invest as low as Rs 1,000. Should you invest in Edelweiss Bharat Bond FoF? What are the risk factors one should consider before investing in the Bharat Bond Fund of Funds (FoF)?
What are the variants offered in Bharat Bond Fund of Fund?
There are two variants in this bond fund:
1) Bharat Bond Fund of Fund – April 2023 series – This variant has 3+ year maturity period and would mature in April, 2023.
2) Bharat Bond Fund of Fund – April 2030 series – This variant has 10+ year maturity period and would mature in April, 2030.
So if you are investing, you need to select the correct mutual fund scheme name based on maturity period.
Issue details of Bharat Bond FoF April 2023 & Bharat Bond FoF April 2030 series
Edelweiss AMC is offering these Bharat Bond mutual fund schemes.
These are open-ended mutual fund equity schemes.
This Bharat Bond Fund would invest in the units of the Bharat Bond ETF which in turn invests in PSUs / Government companies in India. By investing in this fund, you own public sector bonds.
These schemes would open for subscription on 13th December, 2019
These schemes would close for subscription on 20th December, 2019.
AMC would allot mutual fund units by 27th December, 2019.
Since this is an open ended scheme, it would again open for subscription after 5 business days from the date of allotment of Mf units after the NFO period.
These are available in both regular and direct plans.
These plans offer both growth option and dividend option.
These schemes are available for lump sum and SIP investment.
Minimum investment is Rs 1,000 and in multiples of Rs 500 there-off for lump sum investments.
Minimum investment is Rs 500 per month for monthly SIP and for a tenure of 12 months.
The NAV of the NFO is Rs 10 per unit now during initial subscription.
There is no entry load to invest in this mutual fund scheme.
If one wants to exit before 30 days from the date of investment, there is a 0.1% exit load. Beyond this there is no exit load.
These schemes are classified as moderately high risk schemes.
Schemes total expense ratio (TER) is estimated at a maximum of 0.1% of the total assets on any day.
Who can invest in this mutual fund scheme?
Any of the following can invest in this scheme in this scheme.
1) Resident Individuals
2) Resident Indian Nationals, including partnership forms, companies, Banks, HUFs, Sole Proprietorship etc.,
4) Foreign Portfolio Investors
Who is the Fund Manager of Bharat Bond Fund of Fund NFO?
The Fund Managers are Mr. Dhawal Dalal and Gautam Kaul.
What is the benchmark for this scheme?
Here is the benchmark for respective FoFs:
1) Bharat Bond FoF April 2023 series – Benchmark is NIFTY Bharat Bond Index Series – April 2023.
2) Bharat Bond FoF April 2030 series – Benchmark is NIFTY Bharat Bond Index Series – April 2030.
What is the investment objective and strategy of this Bharat Bond Fund FoF?
BHARAT Bond FoF is a fund of funds scheme with the primary objective to generate returns by investing in units of the BHARAT Bond ETF of the respective series. However, there is no assurance that the investment objective of the Scheme will be realized.
What is the allocation pattern in this mutual fund scheme?
This fund investment pattern is as follows:
1) It invests 95% to 100% in the units of the Bharat Bond ETF of respective variant. The risk profile in this segment is low to medium.
2) It invests 0% to 5% in Government Securities maturing on or before the maturity date of the Scheme, TREPS and REPO in government bonds. The risk profile in this segment is low.
Can NRI invest in this MF scheme?
Yes, they can invest in this scheme. They can invest on repatriation or non repatriation basis.
Why should you invest in such Bharat Bond Fund of Fund now?
Here are key reasons to invest in this mutual fund scheme.
1) This fund of fund invests in Bharat Bond ETF where underlying companies are from PSU / Govt companies that are AAA rated. Hence it is relatively low risk.
2) You can get stable returns if you invest till maturity. Currently the 3 year yield is expected at 6.69% and 10 year yield is at 7.58%.
3) Since these ETFs are traded on stock exchanges, it offers high liquidity.
4) It has a low expense ratio of 0.0005%, which helps you to maximize the returns.
5) This fund invests in Bharat Bond ETF which is tracked by NSE on daily basis. It would provide transparency as you would know where you stand on a daily basis and would be able to check details of yield to maturity.
Some key risk factors you should consider before you invest in such funds
One should consider some of these risk factors / negative factors before investing.
1) Investors should prepare for any credit risk. The underlying company’s credit rating can reduce from AAA to be low.
2) Investors should know there is interest rate risk. If the underlying company’s credit rating falls, an ETF can exit such companies and there could be fall in the yield / interest rates at an overall ETF level.
3) Though yield is indicative, it does not offer guaranteed returns.
You may also like: How you can earn upto 15% in P2P Lending?
What are the indicative returns of the Bharat Bond ETF index?
If you are planning to invest in this fund, it would clearly indicate what returns you are expecting. Here are the indicative returns for 3 years/10 years.
1) Bharat Bond ETF 3 year yield is at 6.69%.
2) Bharat Bond ETF 10 year yield is at 7.68%.
If the credit rating of the underlying companies does not change and if you hold any of these two mutual fund schemes (FoF) till maturity, you can expect similar returns indicated above.
Should you invest in the Bharat Bond FoF?
Bharat Bond Fund of Fund invests in the units of the Bharat Bond ETF. If you do not have demat account, you can invest in this mutual fund scheme. However, one should remember few things. In the short term of 3+ years bond, the credit rating risk could be lower, hence good to invest in the Bharat Bond Fund of Fund April 2023 series. However, in the long run of 10+ years, one cannot say how the underlying companies in the ETF are expected to perform. It would be RISKIER proposition if you invest in the 10 year series.
If you like this article, please share this on your Facebook or Twitter. This would be a special gift which you would be giving to our blog.
Bharat Bond Fund of Funds (3 years and 10 years) Review