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Bharat Bond ETF: Investing with Tax Benefits and Predictable Returns



If you are seeking a fixed-income security that offers inflation-beating returns along with long-term tax benefits, consider investing in Bharat Bond ETF. This unique ETF provides similarities to target maturity and fixed maturity bonds while offering distinct advantages. Discover how to invest in Bharat Bond ETF and more in the sections below.

Bharat Bond ETF
Source: Money Control

Understanding Bharat Bond ETF

Introduced by the Central Government on December 2, 2022, Bharat Bond ETF represents India's fourth tranche of the first corporate bond Exchange-Traded Fund (ETF). With a maturity date set for April 2033, this recent offering has been managed by Edelweiss AMC. The government introduced multiple Bharat Bond ETFs in 2019, which have gained popularity among investors due to their long-term dependability and tax efficiency.


Bharat Bond ETF holds a low-risk profile as it primarily invests in debt securities of public sector enterprises with AAA ratings. Retail investors can participate by purchasing these ETFs for a minimum of Rs.1,000, with an expense ratio of 0.0005%.


How to Invest in Bharat Bond ETF?

To invest in Bharat Bond ETF, you can visit the Edelweiss website, approach their brokers, or visit their office to submit an application. If you plan to invest through an ETF, you will need a Demat account. However, if you opt for SIP (Systematic Investment Plan), you can avoid the need for a Demat account.


Returns on Bharat Bond ETF

Review the returns on Bharat Bond ETF in the table below:

Period of Investment

Rs.10,000 Investment on Date

Latest Amount

Absolute Returns

Annualised Returns

1 week

16 February 2023

10012.70

0.13%

-

​1 month

23 January 2023

10058.60

0.59%

-

3 month

23 November 2022

10173.90

1.74%

-

6 month

23 August 2022

10309.80

3.10%

-

YTD

30 December 2022

10098.60

0.99%

-

1 year

23 February 2022

10467.20

4.67%

4.67%

2 year

23 February 2021

110035.20

10.35%

5.05%

3 year

20 February 2020

11946.60

19.65%

6.14%

Since Inception

26 December 2019

12200.00

22%

6.49%

*NAV data returns as of 23 February 2023.


Advantages of Bharat Bond ETF


Consider the following advantages of Bharat Bond ETF before making an investment:


1. Capital Safety: Bharat Bond ETF offers predictable and reliable returns with low credit risk, as it follows a fixed-maturity ETF/MF-style structure with AAA-rated debt securities issued by public sector corporations.


2. Higher Returns: Holding Bharat Bond ETF until maturity ensures increased return predictability. The recent offering has a potential yield of 6.9% net of taxes and an indicated yield of 7.5%, with a maturity date set for April 18, 2033.


3. Liquidity: Bharat Bond ETFs can be bought or sold at any time through an AMC or on an exchange, with certain basket size restrictions. Additionally, Edelweiss has introduced a Bharat Bond Fund of Funds (FoF), allowing retail investors to enter and exit similarly to mutual funds.


4. Cost-effectiveness: Bharat Bond ETF boasts a negligible expense ratio of 0.0005%. The expense ratio covers administrative and other running costs, and a lower ratio translates to higher potential returns.


5. Tax Efficiency: Compared to conventional investment avenues, Bharat Bond ETF offers tax efficiency. It carries a 20% tax rate, indexation benefits, and no surcharge. However, the precise tax implications depend on the upcoming inflation index released by the Income Tax Authority. By mitigating the negative effects of inflation or price increases, the value of your investment can be preserved.


Tax Benefits of Bharat Bond ETF

Bharat Bond ETFs serve as efficient tax instruments. The taxation benefits are similar to debt funds, where profits from ETF units are taxed according to the income tax slab rate if held for less than three years. Returns held for more than three years qualify for a 20% tax rate, considering the indexation benefits.


Moreover, when compared to equity ETFs with underlying securities of private companies, Bharat Bond ETF offers an advantage. Equity ETFs are subject to taxation similar to equity shares, with indexation benefits on gains under Rs.1,00,000 and long-term capital gains tax at 10% for gains over Rs.1,00,000 on units held for more than a year.


In Conclusion

With the aim to raise an initial sum of Rs.1,000 crore through the fourth phase and an optional additional sum of Rs.4,000 crore, the Central Government plans to utilize the revenues from Bharat Bond ETF to fund capital projects (CPSEs) and meet their CAPEX requirements.

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