Mumbai: Retail investors falling under the lower income tax brackets could give the upcoming Bharat Bond Exchange Traded Fund’s follow-up offering a miss. Investment advisors said the product is better suited for rich individuals who are looking for liquidity and better tax-efficient returns.
The offering of this debt fund — the only bond ETF in the country — will open on July 14 for three days. It has two series options — one maturing in 5 years and the other in 11 years. Based on the yields of the underlying index, investors in the second tranche of the ETF maturing in April 2025 could earn 5.71 per cent, while those maturing in April 2031 could earn 6.82 per cent.
“Bharat Bond works well for those in high tax brackets and whose annual income exceeds 10 lakh a year. It gives you liquidity and tax-efficient returns,” said Anil Chopra, group director — financial wellbeing, Bajaj Capital. He believes since these have a target maturity, there is certainty of returns, and hence, investors could use them to meet their goals like child’s education or marriage.
Chopra said investors could allocate one tenth of their fixed income portfolio to such a product.
The product has tax advantages for those in the highest tax slabs. Since it is a debt fund, it enjoys indexation benefit, which means investors pay 20 per cent tax on long-term capital gains, which significantly lowers tax liability and leads to higher post-tax returns. Low expense ratio is another feature that attracts investors.
The product is considered safe because it invests in securities of top-rated government bonds.