Understanding ETFs alongwith Bharat Bond Exchange Traded Fund (ETFs) (GS 3, Economics, The Hindu, Indian Express) 

News/Context: The government is likely to launch the next tranche of the Bharat Bond ETF by December and expects to raise over Rs 10,000 crore to fund growth plans of central public sector enterprises, according to a senior finance ministry official.

The government is likely to launch the next tranche of the Bharat Bond ETF by December and expects to raise over ₹10,000 crore to fund growth plans of central public sector enterprises, according to a senior finance ministry official.

The official added that the fund requirements of CPSEs are being worked out and the third tranche of the exchange-traded fund (ETF) will be launched by the end of the calendar year.

“We are finalising on the amount to be raised but it would be over Rs 10,000 crore,” the official said.

What is ETF: An ETF, short for exchange traded fund, is just like a stock and can be also called a basket of securities that also trade on the stock market. 

Exchange traded funds pool the financial resources of several people and use it to purchase various tradable monetary assets such as shares, debt securities such as bonds and derivatives. Most ETFs are registered with the Securities and Exchange Board of India (SEBI). It is an appealing option for investors with limited expertise in the stock market. 

Bharat Bond ETF is an exchange-traded fund that invests in debt of public sector companies. The ETF currently invests only in ‘AAA’-rated bonds of public sector companies

Bharat Bond ETF is an exchange-traded fund that invests in debt of public sector companies. The ETF currently invests only in ‘AAA’-rated bonds of public sector companies.

The second tranche of the Bharat Bond ETF, which was launched in July 2020, was oversubscribed more than three times, collecting about ₹11,000 crore. It had fetched about ₹12,400 crore in its debut offer in December 2019.

The Bharat Bond ETF offered maturity options of five and 12 years in its second tranche, while in the first tranche, maturity options were for three and 10 years.

Edelweiss Asset Management is the fund manager of the scheme.

What is Bond Rating: Bond ratings are representations of the creditworthiness of corporate or government bonds. The ratings are published by credit rating agencies and provide evaluations of a bond issuer’s financial strength and capacity to repay the bond’s principal and interest according to the contract. The three private independent rating agencies – S&P, Moody’s, and Fitch – control almost 95% of the market share of the bond rating business. Each rating agency uses its own grading system. However, all rating systems classify bond investments by quality grade (investment grade/non-investment grade/not rated) and risk (from default to highest quality). Investment grade bonds are considered safe investments with minimal default risk but provide minimal yields. Non-investment grade bonds are riskier, but they offer a higher yield.

Bond ratings prepared by professional analysts provide institutional and individual investors with a reliable source for making investment decisions.

plutus ias daily current affairs 26 Oct 2021