Bharat Bond ETF

Bharat Bond ETF is a series of target-maturity debt Exchange-Traded Funds launched by the Government of India in December 2019 in partnership with Edelweiss Mutual Fund . The ETF series invests in AAA-rated bonds issued by central public sector enterprises (CPSEs), public sector banks, and other government-related entities, with each ETF holding bonds maturing within a specific year (target maturity). The structure provides retail investors access to high-grade government PSU debt with predictable maturity profiles and exit liquidity through stock exchange trading.

For an Indian retail investor seeking exposure to high-quality corporate debt without active credit-selection risk, Bharat Bond ETF offers:

• Predictable maturity: Each series has a specified maturity year.
• AAA-rated holdings: Lower credit risk than typical corporate bond funds.
• Low TER: Approximately 0.0005 per cent (essentially zero), among the lowest in Indian mutual funds.
• Exchange liquidity: Trade during market hours like equity ETFs.

This article covers the ETF structure, the maturity series, the index methodology, the role in retail portfolios, the tax treatment, and the comparison with other debt instruments.

ETF structure

Target maturity

Each Bharat Bond ETF has a specific maturity year. Bonds in the portfolio are held to (or near) maturity, with proceeds returned to investors at the ETF’s wind-up date. This contrasts with typical debt mutual funds that have indefinite maturity and continuous portfolio reconstruction.

Underlying portfolio

The ETF holds:

• AAA-rated bonds issued by CPSEs (NTPC, ONGC, IRFC, NHAI, etc.).
• Public sector bank perpetual bonds (AT1 bonds).
• Some Government of India securities.

The portfolio is rebalanced to match the maturity profile of the chosen index.

Edelweiss as AMC

Edelweiss Mutual Fund was selected by the Government of India to manage the Bharat Bond ETF series following a competitive selection process. Edelweiss handles portfolio management, operations, and liaisons with the government.

Maturity series

Multiple Bharat Bond ETF series have been launched with different maturities:

• April 2023: First series (Bharat Bond ETF April 2023). Wound up at maturity.
• April 2025: Second series.
• April 2030: Third series.
• April 2031: Fourth series.
• April 2032: Fifth series.
• April 2033: Sixth series.

Each series targets a specific maturity year, providing investors a choice of duration aligned with their goal timing.

Maturity choice

Investors choose the Bharat Bond series matching their target horizon:

• Short-term (3-4 years): April 2025 series.
• Medium-term (5-7 years): April 2030 series.
• Longer-term (8-10 years): April 2031/32/33 series.

Index methodology

Bharat Bond ETFs track the Nifty BHARAT Bond Index series (a NSE Indices Limited series). Each index:

• Comprises bonds issued by eligible CPSEs and public-sector entities.
• Maturity matches the target year.
• Weighting based on market value with some adjustments.

The index methodology ensures replication is feasible and tracking error is low.

Cost structure

TER

Bharat Bond ETF TER is approximately 0.0005 per cent (basically zero, a few rupees per Rs 1 crore AUM annually). This is among the lowest in Indian mutual funds, made possible by the government-backed structure and the AMC’s strategic loss-leader pricing.

Trading costs

Beyond TER, investors face:

• Brokerage on buy and sell (typically 0.05-0.10 per cent through discount brokers).
• STT applicable on equity but not on debt ETFs.
• Stamp duty on buy.

Liquidity

Bharat Bond ETFs trade on NSE and BSE during market hours. Liquidity varies:

• April 2023, 2025 series: Higher liquidity due to broader retail adoption.
• Newer series: Building liquidity over time.

Market makers ensure reasonable bid-ask spreads (typically 5-25 basis points).

Tax treatment

Post-April 2023 framework

Under the debt mutual fund taxation 2023 reform, all gains on debt-oriented ETFs (including Bharat Bond) are taxed at slab rate as short-term regardless of holding period for units purchased on or after 1 April 2023.

For units purchased before 1 April 2023, the pre-2023 LTCG treatment continues (12 months or more holding qualifying for LTCG with indexation).

TDS

No TDS at the ETF level (unlike bonds, where TDS may apply on coupons). Tax is computed on capital gains at the investor’s tax filing.

Role in retail portfolios

Goal-based bond allocation

Bharat Bond ETF is well-suited for:

• Medium-term goals: 3-10 year horizons where target-maturity matching reduces re-investment risk.
• Conservative allocation: Within a balanced portfolio.
• Tax-aware investors: Despite the post-2023 tax change, the ETF’s near-zero TER and AAA-rated portfolio remain attractive.

Alternative to other debt products

For retail investors with medium-term goals, Bharat Bond ETF is competitive with bank FDs (offering similar credit grade with exchange liquidity) and superior to active debt funds on cost.

Comparison with regular debt mutual funds

See also

• Mutual funds in India
• ETF in India
• Debt ETF India
• Edelweiss Mutual Fund
• Corporate Bond Mutual Fund
• Banking PSU Debt Mutual Fund
• Gilt Mutual Fund
• Long Duration Mutual Fund
• Debt mutual fund taxation (post-2023)
• Debt mutual fund vs bank fixed deposit
• CPSE ETF
• Bharat 22 ETF
• Fund of Funds
• SEBI (Mutual Funds) Regulations 1996
• TER regulation and slabs

External references

• Bharat Bond ETF (Edelweiss)
• Government of India CPSE initiatives
• NSE
• Edelweiss Mutual Fund
• SEBI
• AMFI India

References

1. Bharat Bond ETF scheme information documents from Edelweiss Mutual Fund.
2. Government of India announcements on the Bharat Bond ETF programme.
3. NSE Indices Limited Nifty BHARAT Bond Index methodology.
4. Finance Act 2023 debt taxation amendment.