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Should I invest in the Bharat Bond ETF?

Dhirendra Kumar explains why the Bharat Bond ETF is an investment alternative worth considering in the fixed-income segment

Should I invest in the new debt ETF comprising of PSU bonds? Also, if I want to build a sufficient retirement corpus, should I pick the retirement-specific funds of different AMCs?
- Sanjay

Bharat Bond ETF is a good investment option. There are three advantages of this ETF (exchange-traded fund). One, it comprises of AAA-rated bonds of select public sector companies. Thus, it comes with a high quality portfolio. Two, with a 0.0005 per cent expense ratio, it is an ultra-cheap investment product. Lastly, since the ETF comprises of AAA-rated bonds issued by government-owned entities, the default risk will be low here. With the prevailing risk-averse atmosphere and the ongoing stress in debt funds, this ETF provides the required safety.

Within the fixed-income segment, it's a good alternative. It comes with two variants - one with a three-year maturity and the other with a maturity of10 years. So it has kind of a closed-end structure. If you are planning to invest with a time horizon of three or three and a half years then there are a few pros - negligible default risk, high quality portfolio and low expense structure. Owing to the low expense ratio, it will be able to provide you with healthy returns.

Also, by investing now, you may get the indexation benefit for an extra year. For instance, the three-year variant will provide indexation benefit for four years if held till maturity, further bumping up your post-tax returns. Thus, the tax efficiency will increase.

In the case of the ETF, an investor has to deal with brokers. A better alternative for retail investors is the Fund of Fund (FoF) variants of the ETF. A FoF is like an open-ended fund which will invest in the ETF itself. This will put any liquidity concerns to rest and ease transactions for investors who do not have a demat account.

To answer your second question, I don't feel retirement-specific funds are a good retirement solution; rather they are good hybrid solutions. You should instead select few funds to build your retirement corpus. If your retirement is 30 years away, then you can well start investing in an equity fund. Make sure to treat that investment like your retirement corpus. Even an aggressive hybrid fund will make for a good option if your retirement is 10 years away. When you are two to three years away from your retirement, ensure adequate withdrawal from the corpus.

In my opinion, instead of depending on pre-packaged retirement plans, investors must build a retirement plan all by him or herself.

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