Bharat Bond ETF will invest in only those bonds that have a AAA credit rating

BFSI Industry Interview
On: Dec 16, 2019 | From: Advisorkhoj Team
BFSI Industry Interview in Advisorkhoj - Bharat Bond ETF will invest in only those bonds that have a AAA credit rating

A graduate of Management and Technology Program from the University of Pennsylvania (USA); with joint degrees in Economics from the Wharton School & Computer Science Engineering from the Moore School, meet the Captain of our Ship – Ms. Radhika Gupta – CEO of Edelweiss Asset Management.

Radhika started her career with McKinsey & Company, and then progressed to become a hedge fund manager with AQR Capital – One of the world’s largest Systematic Asset Managers.

She then moved to India to start her own venture named – Forefront Capital Management, an alternative asset management firm, which was acquired by Edelweiss in 2014. An asset management professional with experience across asset classes and investor segments; she successfully led Edelweiss’s acquisition of JP Morgan’s Mutual Fund business and Ambit Capital’s AIF business in 2016.

A true global personality having travelled across 4 continents, she is the founding President of the University of Pennsylvania Alumni Club, a member of the Global Leadership Council of the Management and Technology Program and a Board Member of the Association of Mutual Funds in India (AMFI). A keen micro blogger on Twitter and Bridge player, her recent video ‘The Girl with a Broken Neck’ – A video which narrates her life journey has garnered more than 55K views in a short span of time.

Watch the video here -

Connect on Twitter - @iRadhikaGupta

Most investors associate Exchange Traded Funds (ETFs) with equity. For the benefit of our readers please explain what debt ETFs are?

Though the Exchange Traded Funds (ETFs) route is more commonly associated with equity investments, it also offers investors a compelling opportunity to invest in bonds. This is for the first time that a debt ETF is being launched in India. In order to truly harness this opportunity, investors must better understand this product. Simply put, debt ETFs are funds that invest in bonds and are listed on the exchange. Unlike the more traditional open-ended bond funds, these funds trade on the exchange during the trading hours and offer investors liquidity ie. an opportunity to enter or exit their investments at their as per their own requirements. Additionally, the costs associated with managing a bond ETF are relatively lower compared to actively managed bond funds. Similar to equity ETFs, Bond ETFs closely replicate the underlying index of fixed income securities and allow investors to buy or sell their units through the exchange. From an investor’s point of view – Bonds, Open-ended debt funds and Bond ETFs might look similar as an investment avenue. However, each of them has some unique characteristics that differentiate one from the other. Interestingly, bond ETFs have all the distinct advantages that other fixed income investment avenues have to offer – liquidity, transparency, low cost and tax efficiency.

What is CPSE Debt ETF? Why did the Government decide to raise debt financing for the CPSEs / PSUs through the ETF route?

BHARAT Bond ETF is an initiative by the Government of India. It aims to cater to the borrowing needs of CPSEs by pooling investments from retail, HNI and institutional investors, as well as, give investors a low cost and efficient way of investing in quality fixed income securities. BHARAT Bond ETF is a low-cost basket of CPSEs/CPSUs/CPFIs and other Government organizations that follows an underlying index comprising eligible bonds issued by CPSEs, CPSUs/CPFIs and other Government organizations and trades on the stock exchange. Bond ETF are expected to create an additional source of funding for CPSEs to meet their borrowing needs in an efficient and low-cost way.

The Government had earlier used other routes to divest its ownership stake in CPSEs. This will be the first time that an ETF will be used for the borrowing needs of these companies.

For investors who are not familiar with ETFs please explain how investors can invest in the CPSE Debt ETF during and after the offer period. How can investors sell / redeem the debt ETF?

Any investor holding a demat account can invest in BHARAT Bond ETF. Apart from transacting through the exchange, investors who are willing to buy/sell units worth minimum Rs. 25 crore can place their order directly with the AMC.

Alternatively, investor who do not hold a demat account have an option to invest via the BHARAT Bond Fund of Funds which has a similar maturity in line with the underlying ETF. Similarly, investors can sell/redeem units of the ETF on the exchange during market hours.Please note that the offer period for ETF will start on 12th December 2019 and will end on 20th December 2019

Please describe in brief your investment process in the CPSE Debt ETF?

Investing in BHARAT Bond ETF is a simple process. For ETF schemes, the investor can directly apply with the AMC by filling a simple application form. Investors can also place their order to buy through the respective brokers. A demat account is mandatory for investing in an ETF. Investors who do not hold a demat account can invest in BHARAT Bond FOFdirectly through the AMC just like an investment in any other Mutual Fund scheme. Individual investors can also invest through our website

Over the past 12 months or so, many investors concerns about debt mutual fund schemes especially with regards to credit risk. What are the potential benefits of CPSE Debt ETF for fixed income investors?

The BHARAT Bond ETF will invest only in the bonds issued by CPSEs/CPSUs/CPFIs and other Government organizations. Within this pool, the ETF will focus on quality and issuer credibility. Consequently, it will invest in only those bonds that have a AAA credit rating. Such a rating signifies minimal default risk. In case of an event where an eligible issuer defaults, the AMC will inform DIPAM and subsequently will initiate the procedures to recover the invested amount from the issuer. Simultaneously, the bond’s value will be marked down, as prescribed by SEBI regulations.

Other benefits of BHARAT Bond ETF include better transparency, predictably of return, higher liquidity with easy and low-cost access to high quality public sector company bonds.

Mutual fund investments are subject to market risks, read all scheme-related documents carefully.