Government to ready structure for debt ETFs by March 2019

Government to ready structure for debt ETFs by March 2019

New Delhi, Nov 21: The structure of debt exchange-traded funds, which were announced by Finance Minister Arun Jaitley in the Union Budget for FY19, will be ready by the end of this financial year, a source from the Finance Ministry said.
“We have appointed transactional and legal advisor. Once we receive bids from asset management companies (AMCs), further details of the product will be worked out. It will be ready to be launched by March 2019,” the source said.
About the structure of these ETFs, the source said the ministry is working it out with Central Public Sector Enterprises (CPSEs) by taking into account their financial needs over the next 3 years, 5 years and 10 years.
“We are preparing a basket for those CPSEs depending on the requirement of funds. Thereafter we will launch the product,” the source said.
Debt ETFs will be issued in the form of bonds and will be a combination of mutual funds and ETFs. Retail investors will be able to invest directly in the units of debt ETFs, the source said.
On November 16, the Finance Ministry invited bids from mutual funds or asset management companies (AMCs) for creating, managing and launching a debt ETF.
In line with the 2018-19 Budget announcement, the Department of Investment and Public Asset Management (DIPAM) came out with a request for proposal (RFP) to engage an AMC for the creation and launch of the debt ETF. Bids have to be submitted by December 17.
Securities issued by CPSE issuers are some of most frequently-traded securities in the corporate bond market, DIPAM said in the RFP.
The government is exploring the possibility of creating a fixed income product or a ‘debt ETF’, comprising of bonds, credit-linked notes, debentures, and promissory notes issued by participating CPSEs/PSBs/PSUs as underlying instruments.
The proposed debt ETF may also include government securities (g-secs), but whether to include them or not would be decided at a later date. It would help state-run companies and banks meet their capital expenditure and business needs by leveraging their aggregate strength.
“This will bring enhanced liquidity, investors base and transparency and smoothening of borrowing plans of the participating CPSEs / PSBs / PSUs. This will benefit both the investors and the issuers,” DIPAM said.