Bharat Bond Exchange Traded Fund could work well for savvy investors, but retail individuals would do better by sticking to traditional debt products, said wealth managers.

The ETF — the first such product in the country — will invest only in AAA-rated bonds of public sector companies. Wealth managers said the product is liquid and cheap, making it an investment option for those who want to add it to their portfolio. But, if investors are looking for better returns, they should opt for other products by the government and NCDs of top finance companies, said advisors.

The new fund offer (NFO) of Bharat Bond ETF, which closes on December 20, has the lowest expense ratio at 0.0005 per cent. The anchor book was subscribed by 1.7 times and received bids worth Rs 2,980 crore.

There are two variants of the ETF with one maturing in April 2023 and the other in April 2030.

According to forecasts by Edelweiss Mutual Fund, which operates the product, investors can earn a post-tax return of 6.31 per cent in the three-year ETF and 6.99 per cent in the 10-year ETF, assuming 4 per cent inflation and indexation benefits.

The yield on Nifty Bharat Bond Index — April 2023 is 6.69 per cent and Nifty Bharat Bond Index — April 2030 is 7.58 per cent, which is the likely to be pre-tax returns.

“Investors get indexation benefit in a debt mutual fund that significantly lowers tax outgo if held for more than three years,” said Jignesh Shah, founder, Capital Advisors.

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Financial planners said the returns projected by Edelweiss would happen only if the ETF is held to maturity. In the event of interest rates moving up, there could be mark-to-market losses.

“Retail investors or those in the low tax bracket could choose from a variety of small savings products, post office, company deposits and NCDs that have the potential to offer higher returns and structure their interest payments,” said Rupesh Bhansali, head-distribution, GEPL Capital.



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