Invest In Bharat 22 Etf: A Guide To Getting Started

The Bharat 22 ETF is an open-ended exchange-traded fund that was launched in November 2017. The fund is managed by ICICI Prudential Mutual Fund AMC and seeks to mirror the performance of the Bharat 22 Index, which is designed to measure the performance of select companies disinvested by the Central Government of India. The ETF is intended for investors seeking long-term wealth creation through a diversified portfolio of high-quality public sector undertakings. Investors can purchase the Bharat 22 ETF directly from the ICICI Prudential Mutual Fund website, or through platforms like MF Central and MF Utility.

The benefits of investing in Bharat 22 ETF

Bharat 22 ETF is a well-diversified exchange-traded fund (ETF) that spans six sectors: basic materials, energy, finance, industrials, FMCG, and utilities. The fund offers a range of benefits for investors, including:

Diversification

By investing in 22 stocks from CPSE, SUUTI, and PSU Banks listed on the BSE, Bharat 22 ETF provides investors with exposure to multiple sectors, helping to spread risk and potentially enhance long-term returns.

Conservative Investment Strategy

The fund's holdings are mainly in Large Cap stocks and debt instruments, indicating a conservative investment strategy. Large-cap companies tend to be more stable and less volatile than smaller companies, making them more suitable for conservative equity investors.

Lower Operating Expenses

ETFs generally have lower operating expenses than actively invested mutual funds because they track a particular index. This means that investors in Bharat 22 ETF can benefit from lower fees.

Tax Benefits

Bharat 22 ETF is taxed similarly to equity shares or equity mutual funds. If investors hold the fund for more than a year, long-term capital gains (LTCG) are tax-free. For investments held less than a year, short-term capital gains (STCG) are taxed at 15% + surcharge + cess.

Strong Performance

Bharat 22 ETF has delivered strong returns, with trailing returns of 52.81% (1-year), 35.18% (3-year), 27.74% (5-year), and 17.71% since its launch. The fund's ability to deliver consistent returns is in line with most funds in its category, and it has above-average loss control in a falling market.

Managed by ICICI Prudential AMC

ICICI Prudential AMC, a well-known mutual fund house, manages the Bharat 22 ETF. The fund has an experienced investment team that aims to provide returns that closely correspond to the total returns of the underlying index.

Suitable for Beginners

With a minimum investment of Rs 5000, Bharat 22 ETF is a good option for beginners in the stock market who are willing to invest for the long term. The fund provides exposure to a diverse range of large-cap, dividend-paying companies, and the government offers a discount to retail investors during the NFO period.

How to invest in Bharat 22 ETF

Bharat 22 ETF is an open-ended exchange-traded fund that was launched in November 2017. The fund tracks the performance of the Bharat 22 Index, which is made up of 19 public sector units and 3 privately-owned companies. The ETF is managed by ICICI Prudential Mutual Fund and offers investors a diversified portfolio of 22 stocks across 6 sectors: Basic Materials, Energy, Finance, FMCG, Industrials, and Utilities.

To invest in the Bharat 22 ETF, you will need to have a Demat account. You can then invest through the fund's website or through other online platforms such as BSE Star MF, MF Utility, CAMSonline.com, etc. You can also submit paper applications through any registered service centres of CAMS and ICICI Prudential Mutual Fund AMC. The minimum application amount for retail investors is Rs. 5,000, while the maximum is Rs. 2 Lakh.

It is important to note that there is a lock-in period of 30 days for anchor investors. However, there is no lock-in period for other investors, including retail investors, retirement funds, and qualified institutional buyers.

The ETF offers a lower expense ratio compared to actively managed mutual funds and is considered a reliable investment as it is backed by the government. The fund has a conservative investment strategy, investing primarily in Large Cap stocks and debt instruments.

Bharat 22 FOF

For retail investors without a Demat account, the fund house has launched a Fund of Funds (FOF) scheme based on Bharat 22 ETF, called the ICICI Prudential Bharat 22 FOF. The minimum and maximum application amounts for this scheme are the same as for the ETF.

The tax implications of investing in Bharat 22 ETF

The Bharat 22 ETF is a government-backed investment scheme designed to help the government achieve its disinvestment targets. The ETF is managed by ICICI Prudential Mutual Fund and invests in a diversified portfolio of high-quality public sector undertakings.

When it comes to the tax implications of investing in the Bharat 22 ETF, it is important to understand the difference between short-term and long-term capital gains. Short-term capital gains (STCG) are taxed at a rate of 15% plus surcharge and cess as applicable, while long-term capital gains (LTCG) are taxed at a rate of 10% if the gains exceed Rs 1 lakh.

For short-term capital gains, if the mutual fund units are sold within 1 year of investment, the entire amount of gain is taxed at 15%. On the other hand, long-term capital gains are taxed at 10% if the units are sold after 1 year from the date of investment and the gains exceed Rs 1 lakh.

It is important to note that dividends are also taxed. Dividend income is added to the investor's income and taxed according to their respective tax slabs. Additionally, if an investor's dividend income exceeds Rs. 5,000 in a financial year, the fund house will deduct a Tax Deducted at Source (TDS) of 10% before distributing the dividend.

In summary, the taxation treatment for Bharat 22 ETF is similar to other equity mutual fund schemes, with short-term and long-term capital gains taxed at different rates, and dividends also subject to taxation.

The risks of investing in Bharat 22 ETF

While the Bharat 22 ETF is considered a low-risk investment due to government backing, there are still some risks to be aware of before investing.

Firstly, as with any investment in the stock market, there is a risk of losing money. The value of the fund can go down as well as up, and there is no guarantee that you will make a profit. The performance of the fund may differ from that of the underlying index due to tracking errors, and there is no assurance that the investment objective of the scheme will be achieved.

Secondly, the fund has a very high-risk rating as per SEBI's Riskometer. This means that there is a high possibility of negative returns on your investment. If you need to redeem your investment within five years, this fund may not be suitable, as large-cap funds are typically recommended for those who can remain invested for a longer period.

Another risk to consider is the potential lack of diversification. While the Bharat 22 ETF offers exposure to 22 companies across six sectors, it is still concentrated in India's domestic market. Investing in a single country can be risky due to the impact of economic, political, or other factors specific to that country.

Additionally, as the fund primarily invests in large-cap stocks, it may be more susceptible to systemic risks affecting the Indian economy. Large-cap companies tend to be established businesses that are closely tied to the performance of the overall economy. Therefore, economic downturns or market crashes could negatively impact the fund's performance.

Furthermore, the fund's performance is dependent on the effective management of the underlying portfolio. While the fund aims to replicate the performance of the Bharat 22 Index, there may be deviations due to tracking errors or other factors. Poor management decisions could potentially lead to underperformance or losses.

Lastly, there are tax implications to consider. Short-term capital gains on investments held for up to one year are taxed at 15% plus surcharge and cess, while long-term capital gains above Rs. 1 lakh are taxed at 10%. It is important to understand the tax treatment of any investment and how it may impact your overall returns.

The performance of Bharat 22 ETF

The Bharat 22 ETF was launched in November 2017 to track the performance of the Bharat 22 Index, which is designed to measure the performance of select companies disinvested by the Central Government of India. The ETF's New Fund Offer (NFO) in November 2017 was oversubscribed with 3.35 lakh applications, amounting to Rs 32,000 crore.

As of October 2024, the current Net Asset Value (NAV) of the Bharat 22 ETF is Rs 115.52 for the Growth option of its Regular plan. Its trailing returns over different time periods are: 52.81% (1 year), 35.18% (3 years), 27.74% (5 years), and 17.71% (since launch). The expense ratio of the fund is 0.07% for the Regular plan as of September 2024.

The Bharat 22 ETF has seen strong performance, outpacing the returns of its category over the 1-year, 3-year, and 5-year time periods. The fund's assets under management have also grown significantly, reaching Rs. 20,613.40 crore as of September 30, 2024, up from Rs. 8,422 crore as of June 30, 2019.

The ETF's performance can be attributed to its investment objective of mirroring the performance of the Bharat 22 Index by investing in the equities of the 22 companies that comprise the index. The capital allocation to individual company equity by the ETF is expected to be the same as the weight of each company on the Bharat 22 Index.

The Bharat 22 ETF's performance has been positively received by investors, with the fund receiving high levels of interest from institutional investor groups, including mutual fund houses, retirement funds, and foreign portfolio investors.

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