Bharat Bond ETF debuts on exchanges, paves way for more issuances

The maiden bond ETF has also created a new market for market makers and investors.

The country’s first-ever corporate bond exchange traded fund, Bharat Bond ETF, listed on the exchanges on Thursday. This is the first bond ETF to debut on the exchanges with the purpose of deepening the bond market and making available fixed-income products to investors at a significantly cheaper price.

The exchange traded fund will track three-year bonds traded between Rs 1,000 and Rs 1,000.85 per unit and 10-year bonds traded between Rs 1,000.40 and Rs 1,004.90 per unit. The offer price of both these bond ETFs is Rs 1,000. The tight spreads suggest that volatility is very low, which is due to liquidity and healthy trading volumes. The ETF will track AAA-rated bonds of central public sector enterprises (CPSEs).

The Bharat Bond ETF raised Rs 12,400 crore through a new fund offer in December and is planning a second tranche soon of both the three-year and 10-year maturities. The product is a new asset class for investors looking to invest in fixed-income products with low volatility, as the price differential between the net asset value and the issue price won’t vary sharply.

The key intent is to make available a fixed-income product directly to retail investors while deepening the market for corporate bonds by helping central public sector enterprises issue bonds to a new class of investors. In case of an equity ETF, prices tend to vary and sharp moves in stock prices can lead to relatively higher variations in the NAV. The 10-year bond ETF saw trading volumes of 33,373 units at Rs 3.34 crore on the NSE. The Bharat Fund ETF maturing in 2023 saw trading volumes of 10,945 units at a total traded value of Rs 1.09 crore.

The maiden bond ETF has also created a new market for market makers and investors. The product is disruptive because it also has brought down intermediation costs for both the credit and bond markets. At the listing of the bonds on the National Stock Exchange, Rashesh Shah, chairman and CEO of Edelweiss Group, said the Bharat Bond ETF would change the way investing in the bonds and credit markets is done.

He said, “It has already brought down the intermediation costs. This is one of the key elements of many financial services in India. Thirty years ago, the commission rates used to be 3-4 percentage points in equity markets. Now, we are talking about commission of half a basis point to one basis point. With this Bharat Bond ETF, we do think that the time has come to bring the intermediation cost in credit and bond markets down.”

On the listing, Anuradha Thakur, DIPAM joint secretary, said the product could be a win-win for both investors and central public sector enterprises, whereby CPSEs could borrow at the lowest cost possible and investors would find it interesting if they could get the highest returns possible. “In the end, what has come out is a very tight and simple product structure. This is the first step, the next step is to find ways to push depth and liquidity in the corporate bond
market.”