when you look at a fixed income offering what are the key features you will look at?
# predictability of returns
# ability to get your money back when needed
# tax efficiency
what is Bharath bond ETF?
Bharath bond ETF is a unique fixed income product that invests your money in Govt.of India owned bonds
Bharath bond ETF follows a target maturity structure, which means the fund has a defined maturity date at which you get your capital back along with the interests
there will be two product offerings that are available with a maturity period of 3 and half years and 10 years accordingly ie by April 2023 and April 2030 respectively
in both cases, At the end of maturity, you will get the capital back with the return accrued to you. because of the target maturity structure of Bharath bond and the fact that it is an ETF each series of Bharath bond April 2023 & 2030 will have an index. the index will be provided by NSE. this gives additional transparency in Bharath bond so that you can see holdings daily.
what are the benefits of Bharath bond ETF?
Bharath bond ETF brings in the best feature of bonds, mutual funds, and ETF.
predictability associated with the bonds,
also its defined maturity
it has the benefit of holding a portfolio of securities or diversification that comes with a mutual fund product.
and it is managed professionally
it has the feature of an ETF low cost , high transparency, and the ability to enter and exit without any restrictions.
what are the risks associated with it?
in any fixed-income products, there are two key risks.
they are interest rate risk and credit rate risk.
interest rate is the risk associated with the exchange in bond prices when the interest rate moves.
Credit rate risk is the risk associated with the default in underlying companies.
product like Bharath bond which has a target maturity structure the risk is relatively minimized if an investor holds the product throughout the holding period.
product like Bharath bond because you are holding highest rated or triple-A-rated companies backed by govt of India credit risk is reasonably limited.
what is the expected return from Bharath bond ETF?
Bharath bond is a product that has an underlying index, the yield of the index is a good indication of the kind of returns that an investor could expect. the yield of the index is the average yield the weighted average period of all the underlying bonds in the product and this will give you an idea of the returns you should expect.
how does taxation works in Bharath bond?
Bharath bond has the advantage of a good indexation base tax structure.
what is indexation?
indexation means that the tax you pay will be the tax on the product minus the prevailing rate of inflation.
if the product has a return of 6.5 % and the prevailing rate of inflation is 3%,
then the difference is 6.5 % – 3 % taxable returns
= 3.5 %
on which the rate of tax would be 20 %, so your tax bill would be 70 basis points.
This is a different form of fixed deposit structure for instance where tax is your marginal rate of taxation.
Bharath bond is reasonably tax advantages.
why should you invest in Bharath bond ETF?
for investors looking for safety, liquidity, predictability of returns, and tax efficiency at low cost, Bharath bond fulfills those needs in your portfolio.
also, you have two options
either you can choose a short term which is 3.5 yrs or a long term option which is 10 yrs.