Bond ETFs

An ETF is a basket of securities that reflects the composition of an Index. In case of Stock ETFs the Index is such as S&P CNX Nifty or BSE Sensex or any other. In case of Bond ETFs the Index is composed of a basket of bonds issued by companies or governments. Each ETF will specify the underlying index in its offer document or fund factsheet that can be downloaded from their respective websites.

Bond ETF derives its value from the underlying bonds. These bonds are issued by the government or the companies. The existing Bond ETFs are: SBI – ETF 10 year GILT, Reliance ETF Long Term GILT, LIC G-Sec LTE Fund – RP (G).

It is based on the net asset value of the underlying stocks or bonds that it represents.

Bond ETF typically pays monthly interest. The interest amount is determined by the coupons of underlying bonds. Since Bond ETFs are composed of multiple securities with varying coupons and coupon payment schedules, the monthly payout by the ETF may vary from month to month.

ETFs can be bought or sold on the exchange through your broker. You can buy them directly from the asset management company such as ICICI, Edelweiss or any other that manages the respective ETF.

No entry or exit load.

The expense ratios are usually very small as compared to the mutual funds. For example: SBI – ETF 10 year GILT has an expense ratio of 0.140%.

The monthly payouts are taxed as per the taxation of interest in your hands.

ETF may not be very liquid. In such a case, the net realizable value at the time of exit may be lower than the net asset value.

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