Cabinet approves launch of Bharat Bond ETF to provide more money for CPSUs, CPSEs

New Delhi: The Cabinet Committee on Economic Affairs (CCEA) on Wednesday approved creation and launch of Bharat Bond Exchange Traded Fund (ETF) to create an additional source of funding for central public sector undertakings (CPSUs), central public sector enterprises (CPSEs), central public financial institutions (CPFIs) and other government organisations.

"Bharat Bond ETF will be the first corporate bond ETF in the country," said Finance Minister Nirmala Sitharaman while addressing a press conference after the CCEA meeting chaired by Prime Minister Narendra Modi.

She said the government is trying to deepen the corporate bond market and create alternatives for raising funds. This will help India become a lot more financially vibrant economy.

Bharat Bond ETF will have a fixed maturity period like close-ended mutual funds and the units will be listed on stock exchanges. The unit value will be capped at Rs 1,000. The scheme will offer two options, one maturing in three years and the other in 10 years.

The government had earlier come up with equity ETFs twice -- the first one in 2014 and the second in 2017. "Both the ETFs have had a good success rate," said Sitharaman. "Every retail purchase of the bond will give the satisfaction that a person is participating in the development of economy," she added.

"Besides, while retail investors were earlier making meagerly returns on fixed deposits and savings, they can now invest in ETFs which will be traded openly and will give a rate of interest that will be fixed depending on the flow," said Sitharaman.

The move is part of the government's efforts to enhance depth in the bond market and draw retail investors to the debt products. The proposal was first announced by late Arun Jaitley in his Budget 2018-19 speech.

Bharat Bond ETF is expected to create a new ecosystem of market makers and index providers besides creating awareness among investors for launching new bond ETFs in India, according to an official statement.

"This is expected to eventually increase the size of bond ETFs, leading to achieving key objectives at a larger scale by deepening bond markets, enhancing retail participation and reducing borrowing costs," it said.

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