Investing in Bharat Bond ETFs - Advantages and Taxation
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Just a few weeks back, we received a query from a viewer who was interested in learning more about the Bharat Bond ETF. This blog is specifically crafted for that curious investor looking to gain insights into investment opportunities with Bharat Bond ETF, also known as the Exchange Traded Fund, introduced by the central government a few years ago.
The idea behind this bond is for the government to combine top public sector undertakings into a mutual fund, which is then listed on the stock market for investors to subscribe to. This is how it all began. Since its inception, there have been several series of Bharat bonds introduced, with around five or six already listed on the stock market.
Exchange-traded funds are similar to shares in the stock market, so investors can easily buy and sell them on the secondary market. Unless, of course, the government decides to introduce a new series of Bharat Bonds.
Why Should One Invest in the Bharat Bond ETF?
Steady Security
The Bharat bond ETF includes a collection of top-performing public sector undertakings, all of which are AAA-rated. This makes investing in Bharat bonds a highly secure and reliable investment opportunity. This point cannot be emphasized enough.
Flexible Liquidity
Bharat bonds are easily traded on the market and are listed on the stock exchange - Instant liquidity is guaranteed. You have the freedom to sell your bond at any moment and receive the current market price.
Potential Returns
The yields on these bonds have been remarkably attractive, drawing in investors from all corners. The absence of intermediaries allows the government to directly raise funds through the PSUs. The rates being offered are truly captivating. Most of these bonds have yielded around 7.5% and 8%, which is incredibly enticing for investors.
Cost Effective
The cost of this ETF has been intentionally set at an incredibly low figure, as it aims to attract many investors. With such a minimal cost, investing in this ETF becomes highly affordable. Thus, the notion of a Bharat bond emerges as an exceptionally captivating idea.
Check out the video link for a more in-depth understanding
Who Should Invest in the Bharat Bond ETF?
For investors thinking ahead 3 to 5 years or longer, Bharat bonds are a great option. And if you've got a trading and demat account ready to go, why not consider investing in Bharat Bond ETF? If you're not into trading accounts or demat accounts, or if you prefer not to hold investments in your demat account, you can opt for the fund-of-fund choice provided by certain mutual funds.
A few fund houses even provide the Bharat bond as a fund of funds, where they gather funds from investors to invest in the Bharat bond ETF. Essentially, it's like a feeder fund. Likewise, the profits will be distributed back to the investors. There's no risk of losing out for investors with this option. It's a suitable alternative for those who steer clear of the stock market and prefer mutual funds. Now, let's examine the various perks of the Bharat bond.
Advantages Of Investing in the Bharat Bond ETF
Safety
One of the key advantages of investing in the Bharat bond for me is the safety provided by the basket. It includes some of the strongest blue-chip companies in the PSU industry. These companies are performing exceptionally well, profitable, and have AAA ratings, ensuring a safe investment.
Liquidity
Liquidity is available when needed, allowing for potential investment over five years. However, if you require money quickly, you can easily sell in the stock market and access funds immediately. This investment offers significant liquidity benefits.
Returns
Many of these bonds have been launched with a coupon rate of 7.5% to 8%. The returns you make can vary depending on your portfolio value, but in general, you should anticipate returns at this level. It's interesting to note that we are currently in a period of very high-interest rates.
Let me share my viewpoint on this matter. If you were to acquire these bonds at their present levels, I believe you would be in for a pleasant surprise. As the interest rate gradually softens over the next year or so, these bonds are poised to appreciate even further.
So, the 7.5% or 8% return you anticipate might be significantly higher than expected. If you're planning to invest over the next 18 months, these bonds could potentially deliver exceptional returns that surpass their past performance. This is just one intriguing aspect to consider.
Check out the video link for a more in-depth understanding
Taxation Of Bharat Bond ETF
It's important to consider the tax treatment for these bonds. Currently, there is no indexation benefit for investors. Any capital gains upon redemption will be added to your total income, resulting in tax payments based on your income tax bracket. Whether you're a 30% or 20% taxpayer, the tax rate will apply accordingly. Unfortunately, there is no indexing benefit for debt investments at the moment, so taxation is standard.
When it comes to trading, you can start with a single unit in the market, regardless of your desired size. The Bharat bond is a significant investment worth thousands of crores, ensuring there are no liquidity issues. This allows you to buy or sell in the secondary market at any time.
If you're an investor looking to break free from the low returns of fixed deposits but aren't ready to dive into the risky world of equities, Bharat Bond might just be the perfect middle-ground for you. Take a closer look and see if it's the right fit for your investment portfolio. I hope you find this blog helpful.
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