Bharat Bond ETF expected in Dec or Jan; to come in 3- and 10-yr maturities

The government-backed debt exchange-traded fund (ETF) will be launched with two maturity profiles — three and 10 years — and is expected in December or in early January, pending Cabinet approval, according to ministry sources.

The issue was supposed to be tabled for Cabinet approval on Wednesday, but that did not happen. However, a Cabinet approval is expected by December 4, after which the ETF could be launched promptly, said sources.

Sources said that the government has appointed Edelweiss Asset Management to launch the first tranche of the debt ETF, to be called Bharat Bond ETF, but there may be other tranches as well for which asset managers may be appointed.

AK Capital Services is the sole advisor to the government for the debt ETF, said sources.

The ETF is aimed at increasing retail participation in the bond market, as well as creating additional source of funding for the government-owned companies that would constitute the ETF. The bond ETF will offer investors a way to build and maintain bond-like investments in a cost-efficient manner.

The ETF can be bought and redeemed like a mutual fund. It would be an open-ended fixed maturity structure, and will have two maturities — April 2023 and April 2030. Coupons from the underlying bonds will be reinvested. Up to 5 per cent would be allocated to government securities, or collateralised borrowing and lending obligation for liquidity management. Further, a fund of funds will be launched that will invest its full amount in Bharat Bond ETF.

The government has identified government-owned companies, from rating ‘AAA’ to ‘AA’ for the ETF, but the first tranche would be only for ‘AAA’-rated, added sources.

These companies may be the National Bank for Agriculture and Rural Development, NHPC, Power Finance Corporation, Nuclear Power Corporation of India, REC (formerly Rural Electrification Corporation), National Housing Bank, Indian Railway Finance Corporation, Indian Renewable Energy Development Agency, PowerGrid, Bharat Petroleum Corporation (BPCL), Indian Oil Corporation, Small Industries Development Bank of India, Konkan Railway, Export-Import Bank of India, THDC India, Housing and Urban Development Corporation, and North Eastern Electric Power Corporation (NEEPCL).  

However, any issuer that ceases to be a public sector entity, or in which the government holding falls below 50 per cent, would be removed from the index.

Therefore, BPCL, after its privatisation, may not qualify. So will THDC and NEEPCL.

The Bharat Bond ETF will have a defined maturity date, and will invest in high quality bonds issued by government-owned entities that will mature on or before the maturity date of the ETF.