Bharat Bond ETF’s 6% return draws attracts investors

Rich investors are booking profits in tax-free bonds as yields have dropped to 4.3-4.5%. Some of them are moving to the Bharat Bond ETF, a portfolio of public sector companies with a AAA rating.“Investors can earn a 6% post-tax return in the Bharat Bond ETF series that matures in 2030 and 2031. It is a basket of high quality PSUs (public sector undertakings) which gives comfort to many investors,” said Vikram Dalal, managing director, Synergee Capital.Distributors said the pre-tax yield on the Bharat Bond ETF series that matures in 2030 and 2031 is 6.63%. Since it is a debt fund, it enjoys indexation benefits. It means investors pay 20% tax on long-term capital gains, which significantly lowers tax liability and leads to higher post-tax returns.Assuming an investor holds till maturity, considering inflation of 4% and indexation benefit the post-tax returns would be 6.14%. This is an additional 1.5-1.6 percentage point compared to returns through a tax-free bond.“The Bharat Bond ETF brings in diversification amongst the AAA PSUs versus a single name exposure in the case of tax-free bonds. It also offers liquidity as it is traded on the stock exchange and comes with very low fees,” said Radhika Gupta, CEO, Edelweiss Mutual Fund. Since these bonds have a target maturity, there is certainty of returns and hence investors could use them to meet their goals such as child education or marriage.Yields on tax-free bonds have moved down in line with the lower interest rate environment. These bonds, issued by the NHAI, PFC, REC, IIFCL , IRFC and HUDCO, are AAA rated and currently give a tax-free yield of 4.25-4.5%. Many high net worth individuals bought these bonds from the secondary markets following the government’s decision to stop fresh primary issuances of tax-free bonds after 2016. 83791017 83791018

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