The Union Cabinet on Wednesday cleared the launch of India?s first bond ETF in a bid to deepen the bond market and bring in retail participation in this space. The ETF, called Bharat Bond ETF, will have a fixed maturity of three and ten years and will trade on the local stock exchange. It will invest in a portfolio of bonds of state-run companies and other government entities. The ETF will inlude AAA-rated firms. The unit value of the Bharat Bond ETF will be capped at Rs 1,000. The product was unveiled after two years of deliberations between the Government of India and various other stakeholders.
The scheme will offer two options, one maturing in three years (by 2023) and the other in 10 years (by 2030). It will offer only growth option, and no dividend option. The bond will be launched in December.
The government had earlier come up with equity ETFs twice; the first one in 2014 and the second in 2017. ?Both the ETFs have had a good success rate,? Sitharaman said.
She said her government was trying to deepen the corporate bond market and create alternatives for raising funds and thus, helping India become a lot more financially vibrant economy.
?Every retail purchase of the bond would give the satisfaction that she is participating in the development of the economy,? the FM said. Besides, while retail investors were earlier making meagerly returns on fixed deposits and savings, they can now invest in ETFs, which will be traded openly and will give a rate of interest that will be fixed depending on the flow,? she said.
?It will be the first corporate ETF, which will provide additional money for PSUs (public sector undertakings) as well as other government organisations,? Sitharaman told reporters.
Retail investors will be able to invest in the bonds with as little as 1,000 rupees ($14), it said.
The move reflects Modi?s push to ease rules for state companies to raise funds through debt instruments and further develop domestic capital markets.
In general, ETFs have become a popular investment vehicle for investors because they allow them to invest in a diverse collection of assets.
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