Bharat Bond ETF second tranche launched, base issue size of Rs 3,000 cr

Green shoe option of Rs 11,000 cr; NFO starts July 14 and ends July 17

Edelweiss Mutual Fund launched the second tranche of the Bharat Bond exchange-traded fund (ETF) on Friday for a base size of Rs 3,000 crore, with an option to retain oversubscription of up to Rs 11,000 crore.

In February, Finance Minister Nirmala Sitharaman had announced the launch of the second tranche with Edelweiss as the fund manager, and AK Capital as the advisor to the government.

The first tranche — maturing in 2023 and 2030 — was launched in December last year, and mobilised Rs 12,400 crore. There was also a new fund offer (NFO) of Rs 7,000 crore, which was oversubscribed 1.8 times.

The two new Bharat Bond ETF series will mature in April 2025 and April 2031. NFO will start from July 14 and end on July 17.

Edelweiss Mutual Fund plans to raise an initial amount of Rs 2,000 crore with a greenshoe option of Rs 6,000 crore in 2025 maturity and initial amount of Rs 1,000 crore with a greenshoe option of Rs 5,000 crore in 2031 maturity. 

The ETF will invest in constituents of the Nifty Bharat Bond Indices, consisting of AAA-rated public sector companies. 

The mutual fund will also launch a Fund of Funds with similar maturities for those who do not have demat accounts. 

Of the issues, 25 per cent will be reserved for retail investors and 75 per cent for retirement funds, qualified institutional buyers and non-institutional investors, Edelweiss said in a statement. 

The ETF route may allow public sector units to raise as much as Rs 34,000 crore, and more such tranches can be expected in the current financial year, people tracking the ETF say.

The ETF is becoming popular with investors as since the launch of the first tranche, the two maturities have returned around 12.35 per cent, and 12.77 per cent, respectively, on an annualised basis. In 84 of the first 100 days, the two papers traded at a premium. The bid-ask spread was narrow — at around 5-10 basis points.  The average trading volume has been around Rs 4 crore for each of the maturities. 

According to Joydeep Sen, fixed income consultant at Phillip Capital, in the existing ETF, the 2023 one has less than 3 years remaining for maturity, which makes it ineligible for long-term capital gains taxation or indexation benefits. 

But the new maturities will enjoy these benefits. And with the expense ratio being close to nil, customers stand to benefit, Sen said.