Debt ETF Compare

Additional Useful Information

• An investor can buy “Units” of these Debt ETFs. These units can be purchased at a price which is called the “Net Asset Value” or “NAV”. The NAV of these funds keeps changing daily depending upon the interest earned from the fixed income securities of the companies that are held by them.

• The investor can sell these units anytime at the NAV price prevailing on the day of the sale.

• Total Purchase Amount	=	Number of Units X NAV as on the day of purchase
  Total Sale Amount	=	Number of Units X NAV as on the day of sale
  Total Gain	=	Total Sale Amount – Total Purchase Amount

• Unlike Mutual Funds, ETFs do not attract any exit load since investors sell their ETF units to other investors in the market.

• Considered an alternative to traditional debt investment options and for investors looking for security of their capital.

Returns *

• Debt ETFs do not guarantee any returns.

• If debt ETFs are held over a 5-year period, these funds can generate returns ranging from 6% to 9% per year.

Risk Level

• Debt ETFs are categorized as low to medium risk investments since they invest in the Debt market.

• The risk also depends on the index being tracked. For example, a corporate bond ETF will be riskier than a gilt securities ETF.

Liquidity

• When an investor sells or redeems units of ETFs, the sale amount will be received by the investor in 2 working days (T+2).

• However, sometimes there may not be sufficient liquidity to sell off all holdings. This makes the debt ETFs typically liquid, but not always liquid.

Interesting Facts

• Debt ETFs are passive investments. They do not try to outperform market returns. They simply track the index and mirror its characteristics and returns, unlike mutual funds, that try to outperform market returns.

• ETFs do not have any manager-based risk, like in mutual funds. Since they track an index, ETF managers do not have to take risks that help them outperform the market.

• ETFs have lower transaction costs as compared to mutual funds. In other words, they are more cost efficient as compared to mutual funds.

Tax Implications

• Earnings received from Debt ETFs are taxable.

• When investors sell Debt ETFs prior to maturity, the difference between the Sale Amount and Purchase Amount is typically called “Capital Gain” or “Capital Loss” (if sale amount is lesser than the purchase amount).

• The tax that the investor must pay on Capital Gain is –
• Situation 1 – If the ETFs are sold within a period of 2 years from investment, the Capital Gains earned (called Short Term Capital Gains) are to be added to the taxable income of the investor and taxes are required to be paid based on the applicable tax slab.
• Situation 2 - If the ETFs are sold after a period of 2 years from investment, the Capital Gains earned (called Long Term Capital Gains) are to be taxed at the rate of 12.5% on the gains.

• Interest earned by investors from Debt ETFs are to be added to their total taxable income and taxes are required to be paid as per the tax slab.

• There is no tax in case of “Capital Loss.”

Where To Invest

• https://www.icicidirect.com/exchange-traded-funds-etf

• https://www.5paisa.com/etf/debt-etf