Bharat Bond ETF anchor book over-subscribed 1.7 times; LIC also places bids

Fund could later look at instruments rated below the top-grade, if there is demand

The Rs 15,000-crore new fund offer (NFO) of Bharat Bond exchange-traded fund (ETF) that was launched on Thursday can also receive bids from insurers and private provident funds, as these large-ticket investors were allowed to participate in the NFO.

In a circular issued on Wednesday, the Insurance Regulatory and Development Authority of India allowed insurers to invest in debt ETFs where the underlying debt securities are of public sector units (PSUs). Through a gazetted notification, units of debt ETF meant for investment in PSUs were included in the list of 'debt investments' for non-government provident funds, gratuity and superannuation funds.  

The NFO opened for subscription for anchor investors on Thursday. From December 13-20, the NFO will be open for subscription to other investors. Anchor investors are required to invest in Rs 10 crore and in multiples of Rs 1,000 thereafter. Minimum investment amount for retail individual investors is Rs 1,000 and in multiples of Rs 1,000 thereafter. The maximum investment for these investors is capped at Rs 200,000.

Investors who do not have a demat account can also participate in the NFO through fund of fund (FoF) products. Both the ETF series will be available through the mutual fund route as FoF products. 

OFFER DETAILS

• NFO opened for anchor investors on Thursday
• Other investors can participate between December 13-20
• Investor categories capped at 25% of max amount raised
• Management fee pegged at 0.0005% of expense ratio

The ETF, which will invest in AAA-rated bonds of PSUs, will have two maturities. In the three-year maturity series (April 2023 maturity), the ETF proposes to raise an initial amount of Rs 3,000 crore, with a green shoe option of Rs 2,000 crore. In the 10-year maturity (April 2030 maturity) series, the ETF proposes to raise Rs 4,000 crore with green shoe option of Rs 6,000 crore. 

Speaking at the launch, Radhika Gupta, chief executive officer of Edelweiss Asset Management (AMC), said, “Globally, bond ETFs have grown at a healthy pace in the last decade, primarily due to lower costs compared to traditional bond funds. Bond ETF asset base is around $1 trillion worldwide.”

Edelweiss AMC is managing the ETF. The expense ratio of the fund has been pegged at a measly 0.0005 per cent. This means that if a retail investor puts Rs 200,000 in the ETF, the management fee will come up to just one rupee. 

Gupta said that initially the ETF will look at AAA-rated bonds to make sure retail investors' confidence remains intact. However, if there is demand and opportunity, the ETF could look at instruments rated below the top-grade, she said.

The yield of Nifty Bharat Bond Index (April 2023) is 6.69 per cent and Nifty Bharat Bond Index (April 2030) is 7.58 per cent, as on December 5.