Subscription of Bharat Bond ETF’s second series opens today

The second tranche of the Bharat Bond exchange-traded funds, India’s first corporate debt ETF initiated by the department of investment and public asset management (DIPAM), will open for subscription on Tuesday.

Bharat Bond ETF’s New Fund Offer (NFO) will close on Friday. Its series was issued in December last year, which was oversubscribed by 1.7 times and garnered over Rs 12,000 crore.

Bharat Bond ETF, designed and managed by Edelweiss AMC, is an exchange-traded fund and will have a defined maturity tenure and will invest in AAA-rated bonds of public sector companies.

Here’s all you need to know about the second series of Bharat Bond ETF 2020:

* The second tranche will be offered in two variants. A 10-year ETF that will mature in April 2031 and a five-year product that will mature in April 2025.

* It will have a base issue size of Rs 3,000 crore and a green-shoe option of Rs 11,000 crore. This will take the total size to Rs 14,000 crore.

* The funds raised will be used to finance capacity expansion plans of central public sector enterprises (CPSEs).

* It will invest in constituents of Nifty Bharat Bond Indices consisting of AAA-rated public sector companies. The exposure to each company will be capped at 15% with a quarterly revision of the indexing to minimise risk.

* Bharat Bond ETF April 2025 will invest in bonds of PSUs like PFC, REC, Power Grid Corporation of India, National Housing Bank, IOC, National Bank for Agriculture & Rural Development, Hindustan Petroleum Corporation, NHPC, Export Import Bank of India, Indian Railway Finance Corporation, NTPC, Nuclear Power Corporation of India.

* Bharat Bond ETF April 2031 aims to invest in public sector companies like PFC, REC, Power Grid Corporation, National Highways Authority of India, Nuclear Power Corporation of India, Indian Railway Finance Corporation of India, Housing & Urban Development Corporation and NHPC.

* Of the offer size, 25% has been reserved for retail investors and the rest 75% for retirement funds, Qualified Institutional Buyers (QIBs), and non-institutional investors.

* The units of both the ETFs will be listed on the stock exchanges where they can be traded. The units of the first tranche will also continue to be available for trading on NSE.

* Investors can buy and sell units from the fund house directly if the transaction value is worth Rs 25 crore. A fund-of-funds is also made available to those who do not have Demat accounts. As there is no lock-in period, units can be bought or sold through the trading day at any time.

* The fund allows for a minimum retail investment Rs. 1,001/- and in multiples of Rs. 1/- thereafter, subject to the maximum investment amount of Rs 2,00,000 in the 2025 bond. For retirement funds, QIBs, Non-Institutional Investors, the minimum investment is at Rs 2,00,001 and in multiples of Re 1 thereafter. The conditions are the same for the long-term 2031 bonds as well.

* The fund will be managed at a very low cost of maximum Re 1 for Rs 2,00,000 worth investment. The fund will charge 0.0005% per annum for assets up to Rs 10,000 crore.

* Bharat Bond ETF will follow the taxation of debt funds. The returns will be taxed at 20% after indexation benefits. Indexation allows you to adjust the purchase price of your investment for inflation which in turn lowers the tax on your returns.

* Investors will get a tax break with long term capital gains (LTCG) tax applicable at 20% post-indexation.

* A person can invest in Bharat Bond fund of fund (FOF). There are two series of Bharat Bond FOFs, both investing in ETFs of respective maturities.

* The existing Bharat Bond ETF April 2023 and April 2030, launched in December last year, hold assets worth Rs 5,157 crore and Rs 8,585 crore respectively. Their respective returns since launch are 7.49% and 9.15%.

* Bharat Bond ETFs will have four maturity points on the yield curve of 2023, 2025, 2030 and 2031.

(With agency inputs)

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