Cabinet gives nod to launch Bharat Bond ETF; move to create additional source of funding for PSUs, state-run organisations

  • Bharat Bond ETF will be a basket of bonds issued by CPSUs, CPSEs, CPFIs, state firms or any government organisation

  • It will expand their investor base through retail and HNI participation which can increase demand for their bonds

  • The ETF will track the underlying index on risk replication basis, i.e., matching credit quality and average maturity of the index

The Union Cabinet on Wednesday approved the launch of Bharat Bond exchange traded fund (ETF) to create an additional source of funding for public sector units and other state-run organisations, said Finance Minister Nirmala Sitharaman.

Bharat Bond ETF is the first corporate bond ETF in the country.

Bharat Bond ETF will be a basket of bonds issued by Central Public Sector Undertakings (CPSUs) Central Public Sector Enterprises (CPSEs), Central Public Financial Institutions (CPFIs), state firms or any government organisation.

 Cabinet gives nod to launch Bharat Bond ETF; move to create additional source of funding for PSUs, state-run organisationsIt will expand their investor base through retail and HNI participation which can increase demand for their bonds. With the increase in demand for their bonds, these issuers may be able to borrow at reduced cost thereby reducing their cost of borrowing over a period of time, she said.

Further, 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 the CPSEs at least to the extent of this investment.

The bonds will be tradable on exchanges, she said adding that the unit size will be of Rs 1,000, allowing small investors to invest.

The structure of the Bharat Bond ETF is that each ETF will have a fixed maturity date. Again, the ETF will track the underlying index on risk replication basis, i.e., matching credit quality and average maturity of the index.

The finance minister hopes to diversify the investor base and get retail investors into the bond market.

Bond ETF will be listed on exchanges and investors can avail liquidity with respect to ETF through market makers, said Sitharaman.

The ETF will invest in a portfolio of bonds of CPSE, CPSU, CPFI or any other government organisations that matures on or before the maturity date of the ETF.

As of now, it will have 2 maturity series — 3 and 10 years. Each series will have a separate index of the same maturity series.

With PTI inputs

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Updated Date: Dec 04, 2019 17:36:49 IST