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Bharat Bond ETF’s success could attract more money into India’s corporate debt market, says CRISIL

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Bond ETFs can tide over these challenges and can play an important role in increasing retail investor participation in corporate bond market. (Illustration: Shyam Kumar Prasad)

After India's first PSU corporate bond ETF issue Bhrat Bond ETF kicked off, the corporate debt market in India could see robust inflows from investors, according to a report. The introduction of bond ETFs in India is a step in the right direction because it can channel some of the over Rs 40 lakh crore retail term deposits held by households in banks to the corporate bond market, Crisil Research said in a report.  Interestingly, FM Nirmala Sitharaman had earlier said that Bharat Bond ETF issue was being carried out with the objective of deepening the bond market in thr country. "We are giving the retail investor an option to earn more than the fixed deposit rate, and also participate in the development of the country. Bharat bond ETF will be the first corporate bond ETF in the country," FM Nirmala Sitharaman had said.

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"Bond ETFs enable retail investors to access corporate bonds with the ease of investing in a stock. Bond ETFs are traded on the stock exchange based on live buy-sell quotes," Crisil noted in its report. Taking stock of the category, the research report noted that Equity ETFs are already popular with assets under management of over Rs 1.4 lakh crore as per data from the Association of Mutual Funds of India. Globally, there are more than 1,300 bond ETFs managing more than $1 trillion, which span a wide range of investments, including government bonds, municipal bonds, investment grade and high-yield corporate bonds.

"Bond ETFs have the potential to emerge as an alternate investment avenue for retail investors, considering their ease of use, low cost and liquidity. They can also help showcase the attractiveness of fixed-income investing, and can be used as a stepping stone to more actively managed debt funds," Gurpreet Chhatwal, President, CRISIL Ratings said. The success of Bharat Bond ETFs could improve demand for corporate bonds in India, which in turn, would deepen the corporate bond market with more issuers accessing it to raise funds, noted the firm. Notably, the anchor investor portion of Bharat Bond ETF was subscribed 1.7 times on Thursday, Department of Investment and public Asset Management (DIPAM) said. The Bharat Bond ETF, through which the government seeks to raise up to Rs 15,000 crore, opened for public subscription on December 12th. Investors can subscribe to the ETF with a minimum unit size of 1,000 and the issue will remain open for subscription till December 20.