Recently I wrote about Bharat Bond ETF. But then, I was unaware that the cabinet would permit it so fast. Anyway, I believe it is a step taken in the right direction.
This will be India’s first bond ETF Comprising debt for PSU companies, achieving the dual target of increasing investors in the debt market, making them a little deeper, and opening one more source of capital as if you are thinking about debt, then it most probably bank loan.
It will be a basket of bonds issued by central public sector enterprises/undertakings or any other government organization. (Initially, all AAA-rated bonds.) this will have a fixed maturity of three years and ten years. Bharat ETF will track an underlying index on a risk replication basis, matching the index’s credit quality and average maturity. The index will be constructed by an independent index provider, National Stock Exchange. As of now, Bharat Bond ETF will have two maturity series – 3 and 10 years. Each series will have a separate index of the same maturity series. The cost structure will be 0.0005%, making it the cheapest.
After reading all this, I remember the Lehman brothers Aggregate bond index, now known as the Bloomberg Barclays Aggregate bond index. The index is broadly considered the best total market bond index, as it is used by more than 90% of investors in the United States. The Agg consists of securities of investment-grade quality or better, have at least one year to maturity, and have an outstanding par value of at least $100 million.
Picture credit: Investopedia
The index includes government securities, mortgage-backed securities (MBS), asset-backed securities (ABS), and corporate securities to simulate the universe of bonds in the market. The index functions similarly for the bond market to what the S&P 500 index or Dow Jones Industrial Average (DJIA) does for the equity market.
But I can understand that India is heading in the way where US markets are standing right now.
So I am interested to see where it is heading…
