BHARAT Bond ETF & FoF: Should you invest?
BHARAT Bonds are baskets of fixed income instruments issued by Central Public Sector Enterprises (CPSEs).
It is a government initiative that started in 2019 to enable easy and low-cost debt funding for CPSEs and for investors to get exposure to high quality AAA-rated bonds.
**Edelweiss AMC** manages BHARAT Bond ETFs and FoFs and has launched 6 ETFs and 6 FoFs until now.
But what are ETFs and FOFs?
BHARAT Bond ETFs and FoFs
ETFs = Exchange Traded Funds
FoFs = Fund of Funds
ETFs and FoFs are instruments that allow you to invest in multiple securities (stocks or bonds). So, when you invest in an ETF or FoF, you invest in a diversified portfolio of stocks/bonds.
ETFs and FoFs are types of mutual funds with mostly minor differences. The biggest difference is that ETFs can be traded on the exchange like stocks, whereas FoFs lack this feature. FoFs can be bought and sold at one price (NAV) every day like most mutual funds.
BHARAT Bonds originate in the form of ETFs. They are repackaged into FoFs which are simpler instruments that don’t require a demat account for investment.
BHARAT Bond FoFs are better than ETFs for most investors because of their simplicity. ETF prices can fluctuate wildly for various reasons and if you are not an expert investor, you may end up buying the ETF at an inflated price. In case of FoF, the experts at Edelweiss AMC ensure reasonable buy and sell prices.
|BHARAT Bond ETF
|BHARAT Bond FoF
|Traded on exchange
|Demat account required
|Expense ratio (lower is better)
|1 unit of ETF
|Systematic Investment Plan (SIP)
|Possible with few brokers
|Easy to set up
BHARAT Bond ETF Features
BHARAT Bond ETFs are target maturity funds. This means that they mature at a specific date in the future, like fixed deposits.
Presently, there are 6 BHARAT Bond ETFs which mature at 6 different points in the future: April 2023, April 2025, April 2030, April 2031, April 2032, April 2033.
Hence, each BHARAT Bond ETF invests in bonds that mature around the same time as the ETF maturity. For example: BHARAT Bond that matures in April 2030 will invest in bonds that mature around April 2030.
BHARAT Bond ETFs specify a YTM or yield to maturity. YTM indicates the annual return an investor can expect to generate if he/she stays invested in the ETF until maturity.
The only substantial risk of not achieving the YTM is reinvestment risk. Reinvestment risk is the risk that the interest payments will be reinvested in instruments that generate returns lower than the YTM.
Super low risk
BHARAT Bond ETFs are allowed to invest in AAA-rated securities issued by CPSEs only.
Because of the highest credit rating and government backing of the issuers, BHARAT Bond ETFs are super safe from the credit default perspective.
Low minimum investment
The minimum investment required for BHARAT Bond ETFs is 1 unit. The price of 1 unit is around Rs. 1,000 as of April 2023.
For BHARAT Bond FoFs, the minimum investment required is Rs. 1,000.
BHARAT Bond ETFs don’t have a lock-in. Investors are free to invest and withdraw as they wish.
However, for BHARAT Bond FoFs, exit load (0.1%) applies if withdrawal is done within 30 days from the date of investment. No exit load is applicable on BHARAT Bond ETFs.
BHARAT Bond interest rates
BHARAT Bond ETFs have an interest rate of 0%. This is because the ETFs don’t pay any interest to the investor.
However, this doesn’t mean that the returns generated by the ETFs is 0%. YTM or yield to maturity indicates the expected return from BHARAT Bond ETFs if held until maturity. Here are the YTMs of BHARAT Bond ETFs:
|Yield to maturity (YTM)
[as of April 2023]
|BHARAT Bond ETF - April 2023
|BHARAT Bond ETF - April 2025
|BHARAT Bond ETF - April 2030
|BHARAT Bond ETF - April 2031
|BHARAT Bond ETF - April 2032
|BHARAT Bond ETF - April 2033
Difference between interest rate and YTM:
Interest rate indicates the rate at which investors will receive interest payment while they hold the Bonds. So, a 10% interest rate means investors will get 10% of the face value in interest every year. Interest rate is generally fixed throughout the bond’s life.
YTM indicates the annual return that the investor is expected to generate if they invest in the bond and hold it until maturity. YTM is dynamic because the bond prices fluctuate with market conditions.
What do BHARAT Bond ETFs do with the interest paid by individual bonds?
Most individual bonds that BHARAT Bond ETFs hold pay regular interest. However, the ETFs don’t pay the interest back to the investor rather they reinvest the interest back into the ETF.
Investors who want liquidity need to sell their ETF units on the stock exchange to receive cash against them.
Which BHARAT Bond ETF is better
The best BHARAT Bond ETF for you depends on your risk profile, investment objective and horizon.
If you need money in the year 2025, the ‘BHARAT Bond ETF - April 2025’ is the best one for you if it is within your risk tolerance.
Alternatively, you may want to invest in BHARAT Bonds to time interest rate cycle. For example, if you feel that the interest rate in the market will fall soon*, investing in a longer term is better than investing in a short term bond. This is because long term bonds are more sensitive to interest rate movements than short term bonds.
*Bond prices are inversely related to interest rates. So, if interest rates fall, the prices of existing bonds go up.
So, it is important to decide the investment objective first to select the best BHARAT Bond ETF. It will help you select the best BHARAT Bond for you.
Disclaimer: Information presented here is for educational purposes only.
How to buy BHARAT Bonds
How to buy BHARAT Bond ETF
BHARAT Bond ETFs can be purchased only via brokers. To do so, you need to have a demat account.
Login to your demat account and place a purchase order for the BHARAT Bond ETF you want to invest in. You will need to specify the number of ETF units you want to purchase while placing the order.
How to buy BHARAT Bond FoF
Investing in BHARAT Bond FoF is like investing in a mutual fund. You can either buy demat units or physical units.
Demat units can be purchased only via brokers using a demat account. Physical units can be purchased via any mutual fund investment platform.