In flight to safety, Bharat Bond ETF trumps other fixed-income products

Investors looking for better returns and higher safety in fixed-income product basket could opt for Bharat Bond Exchange Traded Fund (ETF) comprising debt securities of government companies. With safety taking precedence over returns in investing behaviour since the turmoil in the financial markets worldwide on account of the spreading Covid-19, wealth advisors are suggesting rich clients to include Bharat Bond ETF in their portfolios.

“Due to the disruption on account of Covid-19, there is further risk aversion and a flight to safety,” said Vikram Dalal, managing director, Syngergee Capital. “Because of the credit risk aversion, investment in a basket of AAArated government companies that have a target maturity date and low cost is the best option.”

The Bharat Bond ETF, which is India’s bond fund traded on the exchange, consists of bonds issued by government-run companies with the highest AAA credit rating. Some of the companies in the portfolio are the likes of REC, Nabard and PFC.

The ETF comes with two tenures; one maturing on April 17, 2023, and the other on April 17, 2030 with yields of 6.35 per cent and 7.43 per cent, respectively. With debt funds eligible for indexation benefits, investors holding the ETF till maturity could get post-tax return of 5.81 per cent and 6.73 per cent, respectively, assuming inflation would be 4 per cent annually.


Wealth managers said Bharat Bond scores over fixed deposits on both returns and liquidity. A fixed deposit from State Bank of India currently gives pre-tax return of 5.7 per cent, with the post-tax return for those in the 30 per cent tax bracket at about 3.9 per cent. It also scores over tax-free bonds available through the secondary markets, where yields are 5.25-5.75 per cent, depending on the maturity period, said analysts.

Investors should buy the Bharat Bond ETF with the intention of holding it till maturity as there could be swings in its values in the interim.

“Investors should keep in mind that when GSec (government securities) yields keep rising or spreads of PSU bonds over GSec keep rising, they could end up with very low or negative returns in the interim,” said Deepak Jasani, head (retail research), HDFC Securities. “On the other hand, if Gsec yields fall due to lack of credit demand and measures taken by the RBI (Reserve Bank of India) or the government, they could make a windfall profit in a short period of time.”

Wealth advisors said liquidity of Bharat Bond ETF compared to most debt instruments has drawn several investors to this product.