India’s 1st Bond Exchange -Traded Fund

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CONTEXT

India’s first bond exchange-traded fund (ETF) is just a few weeks away from being rolled out.
Called the Bharat Bond ETF, Edelweiss Asset Management will launch it soon, after nearly two years of deliberation with GOI.
Former finance minister Arun Jaitley had made announcements relating to bond ETFs in Budget speech of 2018.

Exchange Traded Funds are essentially Index Funds that are listed and traded on exchanges like a single stock.
ETFs invest in a basket of securities representing an index, security or commodity.
The ETFs trading value is based on the net asset value of the underlying stocks that it represents.

A bond is a fixed income instrument that represents a loan made by an investor to a borrower.

Bond ETF will be listed and traded on exchanges like a stock.
Its trading value will be based on the net asset value of the underlying bonds that it represents.

Bharat Bond ETF will be a basket of bonds issued by central public sector enterprises.
It will invest in a portfolio of bonds of CPSE, CPSU, CPFI or any other government organization.
Initially, all AAA rated bonds.

Think of several companies issuing bonds instead of equity shares, almost at the same time, to the ETF.
The ETF collects the amount and lends it to the companies that require the funds for a fixed period of time.
The companies pay back the ETF, which in turn gives the amount back to the investors.

CPSE ETF was launched in May 2014 and comprised of 10 companies.
Government had divested Rs.11500 crores through this ETF.
BHARAT 22 ETF was launched on 14th November 2017. Bharat 22 is more diversified with investment in 22 companies across 6 sectors.
Central Public Sector Enterprises’ ETF and Bharat ETF, helps investors buy shares in multiple state-owned companies.
A debt ETF – much like a debt fund – does not give investors the ownership of companies.