India's first corporate bond exchange-traded fund (ETF), which opened for public subscription on December 12 and closed on Friday, was over-subscribed 1.7 times, garnering Rs 12,000 crore to be utilised for capex of PSUs. The government aims to raise Rs 15,000 crore through this new fund offer (NFO), which is managed by Edelweiss Asset Management Company. Investors can subscribe to the ETF with a minimum unit size of Rs 1,000. The NFO was subscribed 1.7 times on its first day of allotment.
The base size of issue is Rs 7,000 crore. "India's first corporate Bond ETF, Bharat Bond ETF, has received a great response from investors across different segments," DIPAM Secretary Tuhin Kanta Pandey said.
India’s first corporate Bond ETF, Bharat Bond ETF, has received a great response from investors across different segments.The issue was oversubscribed approximately 1.7 times, collecting about INR 12000 crores. Information is subject to further updates. pic.twitter.com/udZ64LX5Gm— Secretary, DIPAM (@SecyDIPAM) December 20, 2019
The exchange-traded fund will invest only in AAA-rated bonds of public sector companies and will have target maturity structures. The ETF with a 3-year maturity will follow the Nifty Bharat Bond Index-April 2023 and the one with a 10-year maturity will follow the Nifty Bharat Bond Index-April 2030. The yield as on 5 December 2019, of Nifty Bharat Bond Index-April 2023 is 6.69 per cent and the Nifty Bharat Bond Index-April 2030 is 7.58 per cent.
The investors who hold these ETFs for over 3 years will get the benefit of capital gains with indexation. On December 4, the Cabinet Committee on Economic Affairs (CCEA), chaired by Prime Minister Narendra Modi, had given its approval for creation and launch of Bharat Bond ETF to 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 organisations.
Features of Bharat Bond ETF:
- ETF will invest only in AAA-rated bonds issued by public sector companies.
- It will be listed on stock exchanges.
- Small unit size will be Rs 1,000.
Bharat Bond ETF Structure:
- Each ETF will have a fixed maturity date. 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.
- The ETF will track the underlying Index on risk replication basis, i.e. matching Credit Quality and Average Maturity of the Index.
- It will invest in a portfolio of bonds of PSUs that matures on or before the maturity date of the ETF.
Edited by Manoj Sharma with agency inputs