BHARAT BOND EXCHANGE TRADED FUND
05, Dec 2019
Prelims level : Investments, Investment Models Mains level : GS-III Investment Models
Why in News?
- The Cabinet Committee on Economic Affairs (CCEA) has given its approval for creation and launch of Bharat Bond Exchange Traded Fund (ETF).
Exchange Traded Fund:
- Exchange Traded Funds (ETFs) are mutual funds listed and traded on stock exchanges like shares.
- Index ETFs are created by institutional investors swapping shares in an index basket, for units in the fund.
- Usually, ETFs are passive funds where the fund manager doesn’t select stocks on your behalf. Instead, the ETF simply copies an index and endeavours to accurately reflect its performance.
- In an ETF, one can buy and sell units at prevailing market price on a real time basis during Market Hours.
Significance of ETF:
- ETFs are cost efficient. Given that they don’t make any stock (or security choices), they don’t use services of star fund managers.
- They allow investors to avoid the risk of poor security selection by the fund manager, while offering a diversified investment portfolio.
- The stocks in the indices are carefully selected by index providers and are rebalanced periodically. They offer anytime liquidity through the exchanges.
What is Bharat ETF?
- Bharat Bond ETF would be the first corporate Bond ETF in the country.
- Bharat Bond ETF will create an additional source of funding for Central Public Sector Undertakings (CPSUs) Central Public Sector Enterprises (CPSEs), Central Public Financial Institutions (CPFIs) and other Government organizations.
- ETF will be a basket of bonds issued by CPSE/CPSU/CPFI/any other Government organization Bonds.
Features of Bharat ETF:
- Tradable on exchange
- Small unit size Rs 1,000
- Transparent Net Asset Value (NAV) i.e. periodic live NAV during the day
- Transparent Portfolio (Daily disclosure on website)
- Low cost (0.0005%)
Structure of Bharat ETF:
- Each ETF will have a fixed maturity date
- The ETF will track the underlying Index on risk replication basis, i.e. matching Credit Quality and Average Maturity of the Index
- Will invest in a portfolio of bonds of CPSE, CPSU, CPFI or any other Government organizations that matures on or before the maturity date of the ETF
- As of now, it will have 2 maturity series – 3 and 10 years. Each series will have a separate index of the same maturity series.