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Cabinet Approves the Launch of Bharat ETF Bonds

The Cabinet Committee on Economic Affairs (CCEA) has approved the creation and launch of Bharat Bond ETF (Exchange Traded Fund) in order to create an additional source of funding for the Central Public Sector Enterprises (CPSEs), Central Public Sector Undertakings (CPSUs), Central Public Financial Institutions (CPFIs) and other government institutions.

The Bharat Bond ETF is set to be the country’s first corporate bond ETF. The government’s objective behind this launch is to try and deepen the corporate bond markets and create alternatives for raising funds. This is said to contribute towards making India 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.

As stated by the Union Finance Minister Smt. Nirmala Sitharaman, “Every retail purchase of the bond will give the satisfaction that a person is participating in the development of economy.” The first of these bond ETFs is expected to be launched in December itself and will have debt papers of at least 10 CPSEs. Market sources said the ETF will be launched on December 12 and be open till December 20.

The proposal for the first time was announced in the 2018-19 budget speech by the then Finance Minister Arun Jaitley. 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.

The launch of Bharat Bond ETFs is touted to ultimately increase the size of bond ETFs which will then lead to achievement of key objectives at a larger scale by deepening bond markets, enhancing retail participation and reducing borrowing costs.

SOURCE: The Hindu, Business Standard

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