INSUBCONTINENT EXCLUSIVE:
Finance Minister Nirmala Sitharaman said the ETF will help deepen the bond marketNew Delhi: After launching exchange-traded funds 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
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 an in-principle approval to the bond ETF.It will help deepen the bond market as was announced in the
Budget, she said.The ETF will be a basket of bonds issued by state firms or any government organisation, and will be tradable on exchanges,
she said, adding that the unit size will be of Rs 1,000, allowing small investors to participate.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 (NSE).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)."It will also provide access to retail investors to invest in bonds with smaller amount, as
low as Rs 1,000, thereby providing easy and low-cost access to bond markets, she said.This will increase participation of retail investors
who are currently not participating in bond markets due to liquidity and accessibility constraints, she said.Bond ETFs are taxed with the
benefit of indexation which significantly reduces the tax on capital gains for investor, she said.With the increase in demand for their
bonds, she said, the issuers may be able to borrow at reduced cost, thereby reducing their cost of borrowing over a period of time.Further,
the minister said bond ETF trading on the exchange will help in better price discovery of the underlying bonds.Since a broad debt calendar
to assess the borrowing needs of the CPSEs would be prepared and approved each year, it would inculcate borrowing discipline in CPSEs at
least to the extent of this investment, she added.She emphasised that this is expected to eventually increase the size of bond ETFs in
India, leading to achieving key objectives at a larger scale -- deepening bond markets, enhancing retail participation and reducing
borrowing costs.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.""Initially, the ETF will have two maturities -- 3 years and 10 years -- and
will invest in bonds of similar maturities," she added.
