Bharat Bond ETF second tranche worth Rs 14,000 cr to hit market in mid-July

In December, 2019, Bharat Bond ETF mobilised Rs 12,400 crore

The second tranche of the Bharat Bond ETF (exchange traded fund) is hitting around mid-July with an issue offer of up to Rs 14,000 crore.

In February, Finance Minister Nirmala Sitharaman had announced the second tranche and last week Edelweiss AMC, the fund manager, said it would issue Rs 3,000 crore, with a greenshoe option of Rs 11,000 crore. AK Capital is also closely working on the issue as an advisor to the government, which in a video call last week gave the go ahead for the second tranche of the ETF.

In December last year, Bharat Bond ETF 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 maturities involved were 2023 and 2030.

The bid-ask spread (the difference between the buy and sell quotes) has stayed in a narrow range of 5 to 10 basis points, and the daily average traded value in these ETFs has been between Rs 3 to 3.5 crores, making it one of the more liquid ETFs in India, Edelweiss noted. The annual expense ratio is just 0.0005 per cent compared with 1-1.5 per cent on other debt mutual funds. The minimum investment limit of Rs 1,000 is also way lower than other debt mutual funds.

The investor interest, therefore, is significant, and this is what the government wants to capitalise on.

“In the current environment, investors need safe, liquid, and tax efficient options for their debt investments, and Bharat Bond ETF meets this need effectively,” said Radhika Gupta, CEO, Edelweiss Mutual Fund.

According to media reports quoting sources, the ETF route could be used by the government to allow top rated public sector units to raise as much as Rs 34,000 crore. The funds can also be raised cheaply as interest rates have crashed. A 10-year PSU AAA paper trades at about 6.50 per cent, roughly 100 basis points cheaper than their level in December.

Therefore, in the current financial year, there would be more such tranches.

Edelweiss said in its statement that it will be launching two new series. The second tranche will have two new maturities – April 2025 and April 2031. This will be an added advantage, experts say.

“Regarding the two existing series of Bharat Bond ETF, the one maturing in 2023 is less than 3 years remaining maturity. It means, it will not be eligible for long term capital gains taxation or indexation benefits, which is not the case with the new maturities,” said Joydeep Sen, fixed income consultant at Philip Capital.

“You invest as per your cash flow horizon. Expense ratio being next to nil, it is entirely for the benefit of the investor,” Sen said