Edelweiss Mutual Fund launches fourth tranche of Bharat Bond ETF

Bharat Bond ETFs have expanded the prominence of long-term debt investing. Let's learn more about them.

Edelweiss Bharat Bond ETF | Fourth tranche launched by Edelweiss MF

Last week, Edelweiss Mutual Fund announced the fourth tranche of Bharat Bond ETFs (exchange traded funds). These funds have made long-term debt investing more prominent. Investments into debt through passive funds have been successful for the Indian fund industry as they are perceived to be safer compared to traditional debt funds and there is also a visibility of the returns.

About Edelweiss Bharat Bond ETFs
This new Bharat Bond ETF and Bharat Bond FOF (fund of funds) series will mature in April 2033. The new fund offer (NFO) started on 2nd December 2022 and will end on Thursday, December 8, 2022. Through the launch of this new series in the fourth tranche, Edelweiss Mutual Fund proposes to raise an initial amount of Rs 1,000 crore, with a greenshoe option of Rs 4,000 crore. FOF is also available for the investors who don't have any demat account.

Since 2019, five different maturities of Bharat Bond ETFs have been launched by Edelweiss. The first Bharat Bond ETF was launched in December 2019 and will mature in April next year. The fund has given returns of 6.44 per cent since its launch.

"Target Maturity Fund category is growing at an exciting pace post the launch of Edelweiss MF's Bharat Bond ETF. Investing in long-term debt has been brought to the forefront by these funds. BHARAT Bond ETF now has six maturities - from 2023 to 2033, which will allow investors to select the right maturity as per their investment goals. We take great pride in launching BHARAT Bond ETF along with the Government of India, which paved way for an entire new mutual fund category and changed India's investing landscape.", said Radhika Gupta, MD & CEO, Edelweiss Mutual Fund.

Target maturity funds and their popularity
Target maturity funds are open-end debt funds with a specified maturity date that aligns with the expiry date of the bonds that they have in their portfolios. Being open-end in nature, investors can exit the scheme before maturity.

The success of the previous edition has led to other fund houses also coming out with the passive debt index fund option for the investors. In fact, Bharat Bond series has been the category creator of target maturity funds which has been most popular and has seen sharp surge in the assets. Currently the assets under target maturity funds (excluding FOFs) stand at nearly Rs 1.21 lakh crore from Rs 12,400 crore seen in December 2019.

More on fourth tranche of Bharat Bond ETFs
This fourth tranche of the Bharat Bond ETF will invest in constituents of the Nifty Bharat Bond Indices, consisting of AAA rated public sector companies. Some companies included in the index are National Bank for Agriculture and Rural Development (NABARD), National Highways Authority of India (NHAI), Power Finance Corporation among others.

One of the major attractions of such funds is the predictability of the returns. The indicative yield of the underlying index is at 7.5 per cent (as on November 24, 2022), while the indicative after tax yield would be around 6.9 per cent.

What should you do?
Bharat Bond ETFs can be a good option for investors who are willing to invest for a longer duration (in this case till April 2033) as they offer a high quality portfolio with very less expenses (0.0005 per cent).

As with other debt mutual funds held for more than a period of three years, investors will be able to get the benefit of indexation in these funds too. In comparison to investors' interest from deposits which is taxed at marginal rate of tax, the ETFs will be taxed at 20 per cent inflation-adjusted rate.

Suggested read: All you need to know about Bharat Bond ETF

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