Bond ETF (India)
An exchange-traded fund that invests in a portfolio of bonds — typically government securities or high-quality corporate bonds — and trades on stock exchanges like equity ETFs, providing retail and institutional investors with bond market access, intraday liquidity, and transparent pricing.
Bond ETFs in India emerged as a meaningful product category with the launch of Bharat Bond ETF in 2019 by CPSE ETF manager Edelweiss AMC, backed by the government's Bharat Bond programme for PSU borrowing. Bharat Bond ETF was a target-maturity bond ETF investing exclusively in bonds of AAA-rated PSUs and other government entities, with a defined maturity date — making it functionally similar to a fixed maturity plan (FMP) but with exchange liquidity.
The Bharat Bond ETF family expanded with successive tranches: April 2023, April 2025, April 2030, April 2031, April 2032 maturity tranches were launched, allowing investors to match portfolio duration to financial goals. Each tranche held bonds maturing approximately around the ETF's defined maturity date, creating a roll-down return profile.
Other AMCs followed with bond ETFs investing in different segments. Nippon India ETF Nifty CPSE Bond Plus SDL Sep 2026 50:50, DSP Nifty SDL Plus G-Sec Sep 2027 60:40, and various G-Sec-focused ETFs were listed on NSE and BSE. These provided retail investors cost-effective access to government bond markets with TERs well below actively managed debt funds.
Liquidity was a persistent challenge for bond ETFs in India. Unlike equity ETFs which traded with tight bid-ask spreads, bond ETFs often had wider spreads and lower secondary market volumes, necessitating AMCs to appoint market makers to provide continuous liquidity. Large institutional investors typically used the creation-redemption mechanism (exchanging baskets of underlying bonds for ETF units directly with the AMC) rather than the secondary market.
From a taxation standpoint, bond ETFs were treated as debt funds (prior to March 2023 grandfathering changes) — post-2023 budget amendments, all debt mutual fund gains were taxable as per the investor's applicable tax slab regardless of holding period, removing the indexation advantage that had previously made debt funds attractive.