Union Cabinet clears exchange-traded fund for PSU bonds

The ETF will be launched every six months, officials said, adding that Bond ETFs will be taxed with the benefit of indexation, which significantly reduces the tax on capital gains for the investor.

Published: 05th December 2019 11:49 AM  |   Last Updated: 05th December 2019 11:49 AM   |  A+A-

Finance Minister Nirmala Sitharaman

Finance Minister Nirmala Sitharaman (Photo | PTI)

By Express News Service

NEW DELHI: THE Union Cabinet on Wednesday approved the launch of an exchange-traded fund for bonds to be issued by PSUs and state-run financial institutions.

Named the Bharat Bond ETF, the ETF for PSU bonds would be the first corporate bond ETF in the country.

“With the creation and launch of umbrella ETF we hope to diversify investor base,” Finance Minister Nirmala Sitharaman said after the Cabinet gave in-principle approval to the scheme.

“It will help deepen the bond market, as was announced in the budget,” the minister said. The ETF will act as a basket of bonds which the fund would buy on behalf of investors. The units, each of Rs 1,000, can be traded on the exchange and will offer a predictable yield.

Each ETF will have a fixed maturity date and will track the underlying index on risk replication basis. At the onset, it would have two maturity series — 3 years and 10 years. The ETF will likely be launched this month.

The ETF will be launched every six months, officials said, adding that Bond ETFs will be taxed with the benefit of indexation, which significantly reduces the tax on capital gains for the investor.

Edelweiss Asset Management Company, which will manage the government’s debt ETF, said Bharat Bond ETF will be a basket of public sector company bonds aimed at providing easy access for retail investors to these bonds.

Diversified basket

The ETF will act as a basket of bonds which the fund would buy on behalf of investors.

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