The Fixed Income landscape at present

The perception on fixed income mutual funds being a safer asset class was misplaced, with the unfolding of the IL & FS crisis. To make matters worse, the unprecedented move by Franklin Templeton to shut six of their fixed income MFs led to further dwindling of investors’ confidence.

With an economic slowdown expected due to the ongoing pandemic, investors face the risk of companies not being able to meet their debt obligations. This shall further impact investor confidence.

Amidst the current crisis, we advise investors to park their fixed income allocation in safer investment opportunities such as Floating Rate Savings Bonds, Public Provident Funds, Tax Free Bonds, or high-quality AAA-rated portfolios only. Also, they need to fortify themselves with the best wealth management software and delve deep into the latest financial planning software in India.

Evaluating the Bharat Bond ETFs and FOFs under our SLR framework

Bharat Bond ETF/FoF, a low cost, high-quality AAA-rated diversified public sector companies’ portfolio with fixed maturity meets all criteria with respect to our SLR framework.

Safety - High quality AAA-rated PSU companies with 51% government holding.

Liquidity - ETFs: Listed on exchanges – providing the flexibility of entry or exit (daily average traded value in existing Bharat Bond ETFs on exchanges is between ₹3.2 to ₹3.7 Cr)

FoFs - AMC to provide liquidity on daily basis.

Returns - Low cost, tax efficient returns.

There are two maturity options, short term (5- years) and long-term (11 years). The ETFs shall passively track Nifty Bharat Bond Index – April 2025 and Nifty Bharat Bond Index – April 2031, respectively. These two ETFs come about 6 months after Edelweiss AMC’s first two Bharat Bond ETFs (maturing in 2023 and 2030). The FoFs shall invest in the underlying ETFs.

Thereby, with the launch of these new products, investors will have an option to invest in ETFs/FoFs having maturity in 2023, 2025, 2030 & 2031.

Safety-Liquidity-Returns Profile

  • Taxation considered for individual investor in 20% tax bracket.
  • Indicative net yield for MF for >3Y @ 6%; Indexation at 4.0%
  • Bank FDs: Option to exit with a small penalty; Tax free bonds: traded on exchanges;
  • Corporate FDs: Can liquidate with minor penal charges;
  • MFs: Can redeem anytime – exit load may be applicable.

Please click the link below to refer to our detailed note on Fixed Income dated May 17, 2020.

Should you invest in Bharat Bond ETF/FoF?

  • Bharat Bond ETF shall invest in bonds issued by companies with minimum 51% government ownership such as NABARD, IRFC, SIDBI, REC, PFC, NHAI, etc. While these companies are AAA-rated by leading rating agencies, the majority ownership by government makes them pseudo sovereign rated.
  • If held till maturity, Bharat Bond ETF/FoF provide stable and predictable returns
  • The indicative yield on the 5-year instrument stands at 5.64% while that on 10-year is 6.81%. With an indexation rate at 4.0%, the net returns in the hands of investor comes to around 5.35% and 6.30% respectively
  • The low-cost structure of Bharat Bond ETF/FoFs provides an edge over comparable mutual funds

Key Features

NFO Period July 14 – July 17, 2020

Maturity April 2025 & April 2031

Expense Ratio ETF: 0.0005% & FoF: 0.05%

Exit Load ETF: Nil; FoF: 0.1% if redeemed within 30 days, Nil thereafter

Details on existing Bharat Bond ETF/FoF

First series of Bharat Bond ETF/FoF were launched in Dec 2019

Annualized performance as of June 30, 2020; Inception Date: Dec 30, 2019

Update on Sovereign Gold Bonds (SGB) Issue IV

Sovereign Gold Bonds (SGB) Issue IV

This is the fourth instalment of a series of six issues that the government plans for this financial year. It offers a good opportunity for the investors to create an allocation through an SIP.

Performance of the last 3 issues in this financial year

Current price (as of Jun 30, 2020) is based on close price on NSE

Benefits of investing in Gold through SGBs:

  • Minimum investment in Issue IV is 1 gram of Gold at ₹4,852/g
  • Discount of ₹50/g for investors applying through online/digital mode
  • Offers a 2.50% interest per annum, payable semi-annually. Physical Gold, Gold ETFs or Gold funds do not pay any interest
  • 999 purity is guaranteed as it has the backing of Government of India
  • Capital gains, if any, at maturity (8-years) are tax free. This benefit is exclusively available with SGBs only. Physical Gold, Gold ETFs or Gold funds do not qualify for this benefit

Key information

Subscription Date: July 06-10, 2020

Sales channel: Sold through banks, Stock Holding Corporation of India (SHCIL), designated post offices, and stock exchanges (NSE and BSE)

Tenor: Sales channel: July 06-10, 2020 Tradable on stock exchanges within a fortnight of the issuance. However, liquidity on exchanges maybe a concern 8 years with exit option after 5th year to be exercised on the interest payment dates

Tradability: Tenor: Sales channel: July 06-10, 2020 Tradable on stock exchanges within a fortnight of the issuance. However, liquidity on exchanges maybe a concern

Please click the link below to refer to our detailed note on Sovereign Gold Bonds dated on April 23, 2020.

About us

Fintso is a fintech platform that provides solutions to financial entrepreneurs to address their needs of research, advisory, product access and client engagement. We empower entrepreneurs, to do more for their clients while retaining their identity.

The team at Fintso has deep domain expertise on the Indian investment and wealth management space and in cutting edge technology.

Meet the Investment Team

Rajan Pathak
Co-Founder and MD

Rajan was a member of team who launched India’s 1st Multi-Manager and Fund of Funds AMC concept in India. He had also launched India’s 1st Multi Asset, Multi Product “WRAP” Accounts with online action capabilities. These WRAP accounts were Ranked with a 4 Star by Value Research for process and performance. With more than 2 decades of experience in financial markets, Rajan’s accomplishments include establishing successful B2B businesses supporting the financial entrepreneurs. His vast experience & deep understanding of advisor’s need help us build a strong framework of actionable insights.

George Mitra
Co-Founder & CEO

George was part of the Investment Committee and has been instrumental in designing the algorithms for products and advisory in his previous firm. George had helped design the Financial planning software and created the models for Asset Allocation using Efficient frontiers way back in ’00 while in Deutsche Bank. With over 25 years working with Ultra-HNI clients, George has a deep understanding on designing solutions for the end clients.

Kumarpal Jain
Head – 3rd Party products

Over the past 8-years in the Indian financial markets, Kumar has developed an intrinsic understanding of different asset classes and built an excellent product knowledge by working for top wealth management firms. He was a core member of the team that created the processes that were used for fund selection in both these previous organizations and is now working to bring the same level of research and advisory to financial advisors.

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