Bharat Bond ETF: Steps To Apply, Tax Benefit & Returns

If you want to invest in fixed-income security that will earn you an inflation-beating return, consider investing in Bharat Bond ETF. You will also be able to enjoy long-term tax benefits. This ETF has some similarities with target maturity and fixed maturity bonds. But this is different from either of them. Learn how to invest in Bharat Bond ETF and more in the sections below.  

Bharat Bond ETF: What is it?

On 2 December 2022, the Central Government introduced India's fourth tranche of the first corporate bond Exchange-Traded Fund (ETF). In April 2033, the most recent Bharat Bond ETF will mature. The deadline for subscriptions to this new ETF was 8 December 2022. Bharat Bond ETF is managed by Edelweiss AMC. At the beginning of 2019, the government introduced several Bharat Bond ETFs, which have been in high demand from investors due to their long-term dependability and tax effectiveness.

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

How to buy Bharat Bond ETF? 

You can visit the Edelweiss website to apply for Bharat Bond ETF. You can also approach their brokers or visit their office for an application. 

You need to first get a Demat account if you are going to invest in ETF. However, you won’t need one fund of funds; you can do so by opting for SIP. Then you wouldn’t need a Demat account. 

Bharat Bond ETF Returns 

Find the Bharat Bond ETF returns in the following table: 

*NAV data returns as on 23 February 2023. 

Advantages of Bharat Bond ETF 

Here are the advantages of Bharat Bond ETF. You should note these before investing in: 

• Capital safety

A fixed-maturity ETF/MF-style structure with low credit risk that public sector corporations issue with AAA ratings offers predictable and reliable returns.

• Higher return 

When held till maturity, Bharat Bond ETFs offer more return predictability. The most recent offer has a potential yield of 6.9% net of taxes and an indicated yield of 7.5%, with 18 April 2033 as the maturity date.

• Liquidity 

They can be purchased or sold at any moment through an AMC or on an exchange in a certain basket size. Moreover, Edelweiss has released a Bharat Bond Fund of Funds (FoF). Now retail investors can enter and exit just like with mutual funds.

• Cost-effective 

Bharat Bond ETF expense ratio is negligible and stands at 0.0005%. An expense ratio is just a predetermined sum used for administrative and other running costs. The lower the expense ratio, the higher the returns you can earn. 

• Tax efficiency 

Compared to conventional investment avenues, Bharat Bond ETF is tax-efficient. It has a 20% tax rate, indexation benefit, and no surcharge. However, the precise tax repercussion will rely on the upcoming inflation index released by the Income Tax Authority. The value of investment can be preserved by lessening the negative effects of inflation or price increases.

Tax Benefits of Bharat Bond ETF 

Bharat Bond ETFs are efficient tax instruments. The Bharat Bond ETF taxation benefits are similar to debt funds. The profits from ETF units will be taxed as per income tax-slab rate if you hold below three years. Returns will be subject to 20% tax if you hold for more than three years after considering the indexation benefits.

Also, compared to equity ETFs with private company underlying securities, the Bharat Bond ETF has an edge. These equity ETFs are taxed similarly to equity shares, subject to 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 returns on units held for more than a year.

Conclusion 

The Centre intends to raise an initial sum of Rs.1,000 crore through the fourth phase, with a green shoe option of Rs.4,000 crore. Central public sector entities will use the revenues from this ETF to fund capital projects (CPSEs). Additionally, it aids in achieving their CAPEX requirements.