What is Bharat Bond? Definition, Types, Pros & Cons and how to invest in It|

What is Bharat Bond?

Bharat Bond is a debt investment instrument issued by the Government of India through a special purpose vehicle (SPV) called the “Bharat Bond ETF Ltd.” It was introduced by the Government of India in December 2019 as a means to raise funds for state-owned enterprises (SOEs) and other government organizations. Bharat Bond is essentially a bond or fixed income instrument that offers investors a predictable return over a fixed tenure.

Bharat Bond ETFs (Exchange Traded Funds) are listed on stock exchanges and can be bought and sold by investors just like shares of a company. The bonds are issued in two variants: Bharat Bond ETF with a 3-year maturity period and Bharat Bond ETF with a 10-year maturity period. These bonds are issued in units, and investors can buy or sell units of these ETFs on the stock exchange during the specified trading hours.

Bharat Bond is unique because it focuses exclusively on investing in debt instruments of government-owned entities, making it a relatively safer investment option compared to corporate bonds or other debt instruments. It aims to provide retail investors an opportunity to invest in government debt securities with a defined maturity period, regular income, and lower credit risk.

Bharat Bond is an initiative by the Government of India to deepen the Indian bond market and provide a new investment avenue for retail investors while also helping government organizations raise funds for their capital expenditure requirements. However, like any investment, it comes with risks and it is important to carefully understand the terms and conditions of the bonds before investing. It is recommended to consult a financial advisor or conduct thorough research before making any investment decision.

Types of Bharat Bond: Bharat Bonds are issued in two variants based on their maturity periods:

1. Bharat Bond ETF with 3-year maturity: This variant of Bharat Bond has a maturity period of 3 years from the date of issuance. It is designed to provide investors with a relatively shorter investment horizon and aims to generate regular income over the 3-year period. The underlying debt instruments in this ETF comprise bonds issued by government-owned entities that have a maturity period of around 3 years.
2. Bharat Bond ETF with 10-year maturity: This variant of Bharat Bond has a longer maturity period of 10 years from the date of issuance. It is designed for investors with a longer investment horizon who are looking for a relatively longer-term investment option. The underlying debt instruments in this ETF comprise bonds issued by government-owned entities that have a maturity period of around 10 years.

Both variants of Bharat Bond ETFs are listed on stock exchanges and can be bought and sold by investors during the specified trading hours. They offer retail investors an opportunity to invest in government debt securities with a defined maturity period, regular income, and lower credit risk, making them relatively safer compared to corporate bonds or other debt instruments. It’s important to note that these offerings may change over time, and it’s recommended to refer to the latest information from relevant authorities or financial institutions for up-to-date details on Bharat Bond variants.

Like any investment option, Bharat Bond has its pros and cons. Here are some of the key advantages and disadvantages of investing in Bharat Bond:

Pros:

1. Lower credit risk: Bharat Bond primarily invests in debt instruments issued by government-owned entities, which are considered to have lower credit risk compared to corporate bonds or other debt instruments. This may make Bharat Bond a relatively safer investment option for conservative investors.
2. Predictable returns: Bharat Bond offers a defined maturity period, which allows investors to know the expected returns upfront. This may provide investors with greater certainty about the potential returns from their investment.
3. Regular income: Bharat Bond aims to generate regular income for investors through coupon payments, which are typically made at regular intervals. This may be appealing to investors seeking a steady income stream from their investments.
4. Diversification: Bharat Bond allows investors to diversify their investment portfolio by including government debt securities in their holdings. This may help in spreading out investment risk across different asset classes and reduce the overall portfolio risk.

Cons:

1. Limited capital appreciation potential: Bharat Bond is primarily designed to generate income through coupon payments, and its potential for capital appreciation may be limited compared to other investment options such as equities or high-yield corporate bonds. The returns may not keep up with inflation, which could impact the purchasing power of the investment over time.
2. Interest rate risk: Bharat Bond is sensitive to changes in interest rates. If interest rates rise, the bond prices may fall, which could result in capital losses for investors who wish to sell their bonds before maturity.
3. Market volatility risk: Bharat Bond is listed on stock exchanges and is subject to market forces, including price fluctuations due to demand and supply dynamics, liquidity conditions, and economic factors. This could impact the market value of Bharat Bond ETF units, which may result in losses for investors if they sell their units during a period of market volatility.
4. Liquidity risk: Bharat Bond ETF units are traded on stock exchanges, and the liquidity of these units may be subject to market conditions. If there is insufficient demand for Bharat Bond ETF units, it may impact the ease of buying or selling units at the desired price.
5. Limited issuer pool: Bharat Bond invests in debt instruments issued by government-owned entities, which may limit the issuer pool compared to other types of bonds. This could result in concentration risk if a significant portion of the portfolio is invested in a few issuers, which may impact the overall portfolio risk.

It’s important to carefully consider these pros and cons, assess your risk tolerance, and consult a financial advisor before making any investment decision, including investing in Bharat Bond. Understanding the risks and potential rewards associated with Bharat Bond or any investment option is crucial to making informed investment decisions that align with your financial goals and risk tolerance.

Investing in Bharat Bond can typically be done through the following steps:

1. Choose the variant: Decide whether you want to invest in the 3-year or 10-year maturity variant of Bharat Bond, based on your investment horizon, risk tolerance, and financial goals.
2. Open a demat account: Bharat Bond is traded in dematerialized (demat) form, so you would need to have a demat account with a registered depository participant (DP) in India. If you don’t have a demat account, you can open one with a DP of your choice.
3. Complete KYC requirements: As per regulatory guidelines, you would need to complete the Know Your Customer (KYC) requirements by submitting your identity proof, address proof, and other relevant details to the DP.
4. Place an order: Once your demat account is open and KYC is completed, you can place an order for Bharat Bond ETF units through your preferred stockbroker or online trading platform. Bharat Bond ETF units are listed on stock exchanges and can be bought and sold during the specified trading hours like any other stock or ETF.
5. Provide necessary details: While placing the order, you would need to specify the details such as the variant of Bharat Bond, quantity of units to be bought, and the price at which you wish to buy the units (if you are placing a limit order).
6. Make payment: Bharat Bond ETF units are bought and sold like stocks, and you would need to make the payment for the units at the time of placing the order. The payment can be made online or through other modes accepted by your stockbroker.
7. Monitor and manage your investment: Once you have invested in Bharat Bond, it’s important to monitor your investment regularly and manage it according to your investment goals and risk tolerance. You may receive periodic coupon payments and can track the performance of your investment through your demat account or trading platform.

It’s important to note that the process of investing in Bharat Bond may vary slightly depending on the rules and regulations set by the relevant authorities and financial institutions. It’s recommended to consult a qualified financial advisor and refer to the latest guidelines and instructions from the relevant authorities or financial institutions for up-to-date and accurate information on how to invest in Bharat Bond.

For any query feel free to contact us thru moneysmint99@gmail.com.