Bharat Bond ETF and FoF – April-2033 NFO – Should you Subscribe?

Edelweiss Mutual Funds has launched Bharat Bond ETF and FoF April, 2033 NFO. This NFO would open for subscription on 2nd December, 2022. Bharat Bond ETF would invest in AAA rated public sector bonds maturing before the maturity date. Bharat Bond ETF first tranche that came in 2019 has generated 6.44% yield in the last 3 years in spite of low interest rates. Should you invest in Bharat Bond ETF April 2033 NFO? What are the pointers investors should consider before investing in such bonds.

Also Read: This ETF generated high returns in 9 out of 10 calendar years

What is Bharat Bond ETF?

This is an exchange traded fund (ETF) that invests in AAA rated bonds of public sector companies in India.

Bharat Bond ETF and FoF April 2033 - NFO details, Features and Review

Bharat Bond ETF April 2033 NFO – Issue Details

This NFO would open for subscription on 2nd December and closes on 8th December, 2022.

This ETF invests in bonds of PSUs in India.

This fund has defined maturity date. Means on maturity, you would get back your investments along with the returns.

Minimum investment of Rs 1,000 and in multiples of Rs 1 thereon. There is no maximum limit.

One can invest in ETF in demat form or through Fund of Fund (FoF) in non demat form.

There is no exit load if invested through ETF. However, if invested in Fund of Fund through non demat form, there is an exit load of 0.1% if such units are redeemed within 30 days.

Mr. Dhawal Dalal (Fund Manager) and Mr. Rahul Dedhia (Co-Fund Manager) are the fund managers of Bharat Bond ETF April 2033 version.

Benchmark of the fund is a Nifty BHARAT Bond Index – April 2033.

These bonds are listed on the stock exchange and investors can buy or sell anytime during the tenure of the fund.

What is the Investment Strategy of Bharat Bond ETF April 2033 NFO?

To track the Nifty BHARAT Bond Index – April 2033 by investing in bonds of AAA-rated CPSEs/CPSUs/ CPFIs and other Government organizations, subject to tracking errors.

What does Nifty Bharat Bond Index April 3033 contains?

This index contains the following constituents. However, these would be reviewed every quarter to ensure portfolio has only AAA rated bonds. Yield To Maturity (YTM) is 7.67% as of now with maturity date of 18th April, 2033.

Bharat Bond ETF and FoF April 2033 - Constitutents

How to invest in Bharat Bond ETF April 2033?

Bharat Bond ETF – If you have demat account, you can login to your demat account and invest in this ETF.

Bharat Bond ETF FoF – If you do not have demat account, you can invest through mutual fund route. You can login to your mutual fund account (whatever platform you are using) and apply the same.

Bharat Bond ETF and FoF – Indexation Benefits

Investment in these bonds can provide indexation benefits. Below example illustrates on how these bonds are tax efficient.

Bharat Bond ETF and FoF April 2033 - Indexation Example

Why should you invest in Bharat bond ETF April 2033?

Here are some of the positive factors.

1) Current index yield is 7.67%. Investment in such bonds can provide predictable returns.

2) These bonds provide high safety as they invest in bonds of Public Sector Companies which have no default risk.

3) While investors need to invest till maturity, since these are listed on stock exchanges, they can exit in case of any need of money.

4) These are tax efficient bonds as they offer indexation benefits.

5) This fund is managed with very low cost of 0.0005%.

Why NOT to invest in Bharat bond ETF April 2033?

Here are some negative factors.

1) The index yield is only indicative yield and not guaranteed. As an example, the Bharat Bond ETF index has generated 3.9% returns in last 1 year.

2) Bharat bond index where this ETF would be investing would be tweaked every quarter to have only AAA rated bonds. As an example, if a PSU ceases its AAA rating to below rating, the ETF is forced to sell such PSU bonds even if the price has fallen. Bharat Bond ETF prices can fluctuate due to this in the short term.

3) Though the ETF trades on stock exchanges, the issue price can fluctuate based on the demand and supply of the bonds.

Also Read: This Hybrid Fund generated 27% SIP returns in last 5 years

Should you invest in Bharat Bond ETF or Bharat Bond FoF April 2033?

Bharat Bond ETF invests in bond of PSU companies which are AAA rated bonds. There is no default risk as it invests in PSU companies. The current index yield is 7.67% which is high. Such bonds can provide indexation benefits unless you are investing for short term.

On the other hand, bond yields can fluctuate in the short term. The current yield is only indicative and does not guarantee the returns.

Investors who are looking for a safe investment option and comfortable with the indicative yield and willing to invest for long term of 10+ years,  can invest in such bonds.

Source: Bharat Bond ETF April 2033 SID and Bharat Bond ETF FoF April 2033 SID

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Suresh KP

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