Bharat Bond ETF 2025 is merging. Is it good for you?

Bharat Bond ETF and FoF 2025 were launched by Edelweiss Mutual Fund in 2020 to provide Indian investors an opportunity to put their money in high-quality bonds issued by government-owned entities such as REC (Rural Electrification Corporation), Power Finance Corporation, Hindustan Petroleum Corporation, Indian Railway Finance Corporation and NTPC(National Thermal Power Corporation).

Since government-backed institutions issue these AAA-rated bonds, credit risk is minimal, making the Bharat Bond ETF and FoF a secure fixed-income investment.

However, with both variants of Bharat Bond set to mature soon, the Edelweiss fund house has decided to merge them with Bharat Bond ETF and FoF 2030 from April 15 and 16, 2025, respectively. The reason is pretty simple: extended investment timeframe and continued exposure to relatively safer public bonds.

What does the Bharat Bond merger mean for investors?

The existing investors can extend their investment until 2030 by giving their consent.

But if no action is taken, the ETF and FoF holdings will be automatically redeemed on April 15 and 16, 2025, respectively.

This option should be exercised if you need the money sooner than later.

For the rest, let's explain why Bharat Bond ETF and FoFs can be a good option.

Bharat Bond ETF and FoF returns are competitive

Bharat Bond currently offers a yield to maturity (YTM) of approximately 7.23 per cent, which represents the indicative annual return if held until maturity. This yield is competitive compared to other target maturity funds (TMFs) with similar maturities.

Given that the RBI has already implemented one interest rate cut, locking in a higher yield now could be beneficial. If interest rates decline further in the coming years, today's yield could prove even more attractive, ensuring stable returns over the extended period.

Further, if we look at the trading volumes, the average of the daily turnover has been around Rs 2 crore in the last six months, which means selling the investment may not be stressful for a retail investor.

How does it compare to other fixed-income options?

If you are considering alternatives, here's how Bharat Bond stacks up against other fixed-income instruments:

• Bank fixed deposits (FDs): Major banks currently offer interest rates between 6.5 per cent - 7 per cent for five-year deposits. While they offer better liquidity, they lack tax efficiency and may result in lower post-tax returns.
  
• National Savings Certificate (NSC): The current interest rate is 7.7 per cent for a five-year term. Backed by the government, the returns are competitive to the Bharat Bond ETF 2030.

Taxation

The merger does not create any additional tax liability. For ETF investors, gains after a holding period of one year are taxed at 12.5 per cent, keeping the tax treatment unchanged whether you stay invested or redeem your units.

For FoF investors, if the holding period exceeds two years, gains will be taxed at 12.5 per cent.

On the other hand, gains from other fixed-income options like bank FDs and NSC are taxed as per your income tax slab rate.

How to provide consent for the merger

To opt for the merger, Bharat Bond ETF investors must provide consent between March 10 and April 8, 2025. For FoFs, the dates are between March 12 and April 11, 2025. This can be done in two ways:

1. Submit a signed consent form at any Edelweiss Mutual Fund branch

2. Use the online transaction facility on the Edelweiss Mutual Fund website

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