Bharat Bond ETF may fetch up to Rs 15,000 cr, launch likely in two series

Fund to be launched in two series with greenshoe option on Thursday

The issue of the Bharat Bond Exchange-Traded Fund (ETF) is set to hit the markets on December 12, with public sector undertakings (PSUs) included in the ETF looking to raise as much as Rs 15,000 crore, according to sources close to the finance ministry.  

 The book will open on December 12, and close on December 20. The net asset distribution will happen after five days. So, it will start trading from December 25-26 on the bourses, said sources.   

The ETF will be launched in two series. For the three-year ETF, mobilisation will be up to Rs 5,000 crore, which includes Rs 2,000 crore of the issue size and Rs 3,000 crore of greenshoe option. For the 10-year series, PSUs can fetch up to Rs 10,000 crore — Rs 4,000 crore of the issue size and Rs 6,000 crore of the greenshoe option. 

“Initially, the bonds put in the ETF will be AAA-rated so that retail investors get full confidence of the product. A great amount of investor awareness campaign has been lined up for this issue. The idea is to bring in as many retail investors as possible into a very secured bond offering,” said a source.

Further, sources said, to ensure wider participation, a fund of fund (FoF) will also be launched so that the product is not restricted to demat account holders. An FoF will allow more investors to take exposure to the ETF through the mutual fund route. 

In another move to facilitate the ETF launch, the National Stock Exchange on Thursday launched the NiftyBharat Bond Index — April 2023 and the NiftyBharat Bond Index - April 2030. These indices will track the performance of the bonds that will form part of the bond ETF. According to industry experts, the ETF can revive an investor interest in the fixed income market if there are not many hiccups in the execution part. 

“If the product is able to manage the various issues pertaining to the Indian debt market, such as relatively weak liquidity and credit fears, then the product has huge potential,” said an expert. 

A flurry of downgrades and defaults since the IL&FS crisis last year has hit sentiment of retail investors in the fixed income segment. 

“Retail investors may find a debt ETF — with AAA-rated bonds — a safer alternative.

However, it is important that investors are clearly informed about the risk-return profile of the product so that there are not many negative surprises,” said Vikram Dalal, founder at Synergee Capital, a Mumbai-based advisory firm.  Industry experts say the product will give the option to investors to match their goals with maturities of the underlying bonds.

“While there could be volatility during its tenure, specific maturities give investors the option to align their goals. Also, going ahead, there can be multiple tenure bonds, so investors have more choice in doing goal-based investing,” said Vidya Bala, co-founder of PrimeInvestor.in

“Multiple tenure bonds also help investors to mitigate duration risk. The diversification will also help in managing credit risks. Globally, this is known as the laddering approach,” Bala added.

Edelweiss Asset Management Company is the fund manager to the issue. MV Kini Law Firm is the legal advisor to the ETF issue, and AK Capital is the advisor to the government.