The Modi government plans to come out with another tranche of Bharat Bond Exchange Traded Fund (ETF) next month, buoyed by the success of its maiden attempt.

“The details of the bond ETF are being worked out… most likely it could be issued next month,” a senior finance ministry official said.

They did not specify the base size of the fund to be offered for subscription, but indicated that it could be lower than the December issue.

The government is confident of getting a good response to the bond ETF given the overwhelming response it got for the maiden issue.

Bharat Bond Exchange Traded Fund (ETF) mobilised Rs 12,400 crore for central public sector enterprises (CPSEs) in its December issue.

There are two investment options in the CPSE debt ETF managed by Edelweiss — a short-term instrument for three years (Bharat Bond ETF April 2023) and a long-term one for 10 years (Bharat Bond ETF April 2030).

The ETF’s new fund offer (NFO) of Rs 7,000 crore was subscribed nearly 1.8 times.

The three-year debt ETF received bids for Rs 6,982 crore, a subscription of 2.3 times the offer, and the 10-year category got Rs 5,413 crore, subscribed 1.4 times. All the bids were accepted.

New concept

The department of investment and public asset management and Edelweiss would be deliberating with CPSEs to understand their requirement to plan an annual debt ETF issuance calendar as debt ETF is a new concept for the Indian market.

Edelweiss Asset Management Company (AMC), which will manage the government’s debt ETF, has 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.

The Bharat Bond will have a fixed maturity period and the units will be listed on the stock exchanges. The ETF will include AAA-rated firms to begin with and the unit value will be priced at Rs 1,000.

The government has identified government-owned companies from rating ‘AAA’ to ‘AA’ for the ETF, sources said.

These companies may be the National Bank for Agriculture and Rural Development, NHPC, Power Finance Corporation, Nuclear Power Corporation of India, National Housing Bank, Indian Railway Finance Corporation, Indian Renewable Energy Development Agency, PowerGrid, Indian Oil Corporation, Small Industries Development Bank of India, Konkan Railway, Export-Import Bank of India, and Housing and Urban Development Corporation.

The Union cabinet had cleared the creation and launch of the Bharat Bond ETF, allowing retail investors to participate.

In Budget 2019, the government had announced plans for debt ETFs of public sector bonds after the success of equity ETFs such as CPSE ETF and Bharat-22.

“A debt-based exchange-traded fund, recently launched by the government, was a big success.

“The government proposes to extend this by floating a new debt ETF consisting primarily of government securities. This will give retail investors access to government securities (while) giving an attractive investment for pension funds and long-term investors,” finance minister Nirmala Sitharaman said in the budget speech.

For non-investors

Apart from domestic retail investors who can now invest in G-sec via ETF, the finance ministry has also proposed to open certain category of government securities for non-resident investors.

The government has pegged its net market borrowings at Rs 5.36 lakh crore for 2020-21, up from Rs 4.99 lakh crore in 2019-20.

Enabling access to new class of investors will ensure that the government’s borrowing programme goes on smoothly without putting any upward pressure bond yields.

Meanwhile, investors infused Rs 16 crore in gold exchange-traded funds (ETFs) in 2019, after pulling out money from safe-haven assets in the last six years, on fears of a slowdown in the global market and volatility in the equity and debt markets.