The Union Cabinet on Wednesday cleared the creation and launch of the Bharat Bond exchange traded fund (ETF) to deepen the bond market and to broaden investor base by allowing retail investors to participate.
“Umbrella bond ETF will diversify investor base” as we promised in the Budget, for creating an opportunity for the general public to participate in the bond market”, Finance Minister Nirmala Sitharaman told reporters here after a cabinet meeting.
The Securities and Exchange Board of India (Sebi) has recently issued the debt ETF circular.
Sitharaman said that each bond ETF unit is to be priced at Rs 1,000.
The Bond ETF will be listed on exchanges and investors can avail liquidity through Market Makers who must have inventory of ETF units worth Rs 1 crore.
In the Union Budget for 2018-19, the government had announced plans for debt ETFs of public sector bonds after the success of equity ETFs like CPSE ETF and Bharat-22.
Equity ETFs have gained the most from this popularity, with more than Rs 1.38 lakh crore of their assets being managed through these ETFs.
Gold ETFs manage around Rs 5,800 crore. A debt ETF is a collection of such corporate debt paper, where the maturity duration of these bonds are close to each other.
As the series of bonds mature, other debt papers of a same or similar credit quality and maturity are placed in the basket. So a debt ETF, like equity ETF, becomes a perennial investment option.
Debt ETFs in developed markets are held in large numbers by pension funds, endowments and retirement corpuses.