New Delhi: The Union Cabinet on Wednesday cleared the launch of India's first bond ETF in a bid to deepen the bond market and bring in retail participation in this space besides providing an additional source of funding for Central Public Sector Enterprises (CPSEs) and state-owned financial institutions.
Then finance minister late Arun Jaitley had announced a plan to launch a bond ETF in his 2018-2019 Budget speech.
So far exchange-traded funds for equities, CPSE ETF and Bharat ETF have been launched.
Department of Investment and Public Asset Management (DIPAM) Secretary Tuhin Kanta Pandey said, "We are hoping to launch the NFO (New Fund Offer) during the month."
The ETF will be launched every six months, he said, adding the index will be constructed by independent index provider National Stock Exchange (NSE).
"It will be the first corporate bond ETF, which will provide additional money for PSUs as well as other government organisations. Bond ETF will provide safety (underlying bonds are issued by CPSEs and other government owned entities), liquidity (tradability on exchange) and predictable tax efficient returns (target maturity structure)", Finance Minister Nirmala Sitharaman said on Wednesday in the cabinet briefing.
Bharat Bond will have a fixed maturity period, like close-ended mutual funds and the units will be listed on stock exchanges. The ETF will include AAA-rated firms to begin with and the unit value of the Bharat Bond ETF will be capped at Rs 1,000.
As of now, it will have 2 maturity series -- for 3 and 10 years. Each series will have a separate index of the same maturity. The government had earlier come up with equity ETFs twice; the first one in 2014 and the second in 2017.
"Both the ETFs have had a good success rate," Sitharaman said. She said her government was trying to deepen the corporate bond market and create alternatives for raising funds and thus, helping India become financially vibrant economy.
Bond ETF trading on the exchange will help in better price discovery. 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 among the state-run companies, the statement said.