Cabinet approves exchange traded fund for bonds; likely to hit mkt this month

After exchange traded fund for equities, the Union Cabinet on Wednesday approved the launch of exchange traded fund (ETF) for bonds to create an additional source of funding for Central Public Sector Enterprises (CPSEs) and state-owned financial institutions.

The New Fund Offer (NFO) of this ETF is expected be to launched during December itself.

Bharat Bond ETF would be the first corporate bond ETF in the country.

"With the creation and launch of umbrella ETF we hope to diversify investor base," Finance Minister Nirmala Sitharaman told reporters after the Cabinet headed by Prime Minister Narendra Modi gave in-principle approval to bond ETF.

It will help deepen bond market as was announced in the Budget, she said.

ETF will be a basket of bonds issued by state firms or any government organisation, and will be tradable on exchange, she said, adding that the unit size will be of Rs 1,000, allowing small investors to invest.

Each ETF will have fixed maturity date and will track underlying index on risk replication basis, she said, adding that for now it will have two maturity series -- 3 and 10 years -- with a low cost of 0.0005 per cent.

Speaking to reporters, Department of Investment and Public Asset Management (DIPAM) secretary Tuhin Kanta Pandey said, "we are hoping to launch the NPO during the month".

The ETF will be launched every six months, he said, adding that the index will be constructed by independent index provider - National Sock Exchange.

The finance minister said, "Bond ETF will provide safety (underlying bonds are issued by CPSEs and other government owned entities), liquidity (tradability on exchange) and predictable tax efficient returns (target maturity structure)."
Commenting on the approval to bond ETFs, Edelweiss Asset Management Company CEO Radhika Gupta said, "Bharat Bond ETF will be a diversified basket of public sector company bonds aimed at providing easy access for retail investors to invest in these bonds and bringing liquidity in the corporate bond market. It will also help these companies with new source of funding."