Bharat Bond ETF may look at including 'AA' rated securities of PSUs: DIPAM Secy

Bharat Bond ETF, India's first ever corporate bond exchange traded fund, may look at including 'AA' rated securities of public sector companies going ahead as the government aims to deepen the market, DIPAM Secretary Tuhin Kanta Pamdey said on Friday. The ETF currently invests only in 'AAA' rated bonds of public sector companies.

To a query on whether the ETF will include 'AA' rated bonds going forward, Pandey said: "We have kept that provision. We have not restricted it to 'AAA' rated in future. As we go along, we may have to consider, because we want to develop a bond market. The opportunity for more corporates".

Bharat Bond ETF with a fixed maturity of 3 years and 10 years, had fetched about Rs 12,400 crore from its debut offer in December 2019.

The 2023 bond offering helped them save 0.13 per cent on the cost of borrowing and 0.20 per cnet for the 2030 bond issued as part of the first tranche, Pandey said, adding that efforts ought to be made to make it into a mature market.

The second tranche of Bharat bond ETF will be launched on July 14 with a base issue size of Rs 3,000 crore and a green-shoe option of Rs 11,000 crore. This will take the total size to Rs 14,000 crore.

The fund offer, which will be managed by Edelweiss Asset Management, will close on July 17.

Bharat Bond new fund offer (NFO) in December last year had received good response from investors, with the issue subscribed nearly 1.8 times. The base size of the issue was Rs 7,000 crore. Bond ETF was a part of the government's effort to deepen the bond market.

Pandey said the asset under management (AUM) of the ETF has increased and it reflects growing investor confidence in the product.

"The trading has also been healthy, the upcoming issue of Bharat Bond ETF is in line with our vision to create a yield curve and get CPSE and investors easy access to the market," he said.

Pandey said that upcoming issues will help CPSEs in the capex programmes in the coming months.

"We have now a very very good cooperation from CPSE. This time will ensure that bond issuance is not spread over in a very long period. We are going into next 3-4 years time a full fledged 10 year, 11 year, 12 year bonds available in the market, good rated bonds," he added.

He also said that pension fund regulator PFRDA has recently allowed such funds to invest into Bharat Bond ETF.

Edelweiss Group chairman Rashesh Shah, whose asset management arm is managing the sale, said post-tax, an investor stands to earn ip to 2 percentage points more by investing in the Bharat Bond ETF.

Admitting that investors are concerned over declining interest rates, Shah said interest rates coming down is a good thing for our economy and we should aspire to be a low yield economy.

Two new series of the ETF will be sold between July 14-17 and a fourth of the New Fund Offering will be reserved for retail investors.

Shah said in the first tranche, over Rs 12,500 crore was raised for CPSEs and the average trading volume for the bonds - which are listed on the exchanges - is up to Rs 3 crore a day which indicates liquidity.