Bonds: Wealthy Investors See Bharat Bond ETF as Way to Beat FDs

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Mumbai: High net worth investors are staggering their investments in the Bharat Bond ETF where they can earn up to 7.31%. As interest rates rise, these bonds maturing in 2031 and 2032 give them higher yields than a bank deposit and come with a good quality portfolio of PSU bonds, cash and a negligible expense ratio.

“Wealthy investors sitting on the sidelines looking for an opportunity to allocate money to debt can ladder money into the Bharat Bond ETF with every rise in bond yields,” said Niranjan Awasthi, Product Manager, Edelweiss Mutual Fund.

Over the past month itself, the benchmark 10-year has risen 37 basis points to 7.15%, while banks are offering 5.5-5.6% on a 10-year fixed deposit , which makes the Bharat Bond ETF more attractive. One basis point equals 0.01%.

While a 10-year fixed deposit with HDFC Bank offers 5.6%, the Bharat Bond ETF maturing in April 2032 offers a yield of 7.31%, providing investors with additional returns of 1.71 basis points. percentage.

“After the sharp rise in bond yields, the attractiveness of the long-term Bharat Bond ETF has increased. It stands out from traditional deposits due to its lower risk, higher return and tax efficiency,” Santosh said. Joseph, founder of Germinate Investor Services.

Bharat Bond ETF’s portfolio consists of high quality AAA rated bonds from public sector companies, with low credit risk. It is passively managed and has an expense ratio of less than half the year, with the fund following a buy and hold strategy, meaning it invests in bonds with a maturity similar to that of Bharat Bond ETF.

Since these have a target maturity, there is certainty of returns and hence financial planners believe that investors could use them to achieve some long-term goals like raising children or getting married.

“The visibility of returns, high liquidity and tax efficiency make this attractive for people in the high tax bracket,” said Nirav Karkera, head of research at Fisdom.

Karkera, however, said investors should buy with the aim of holding to maturity because there could be fluctuations in bond prices if interest rates rise further.

The ETF is tax-efficient for wealthy investors as a debt fund, it has an indexing advantage, meaning investors pay 20% tax on long-term capital gains, which significantly reduces tax liability and leads to higher after-tax returns. Compared to this, in a fixed deposit, wealthy investors have to pay a 30% tax on interest income.

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