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Opinion

Podcast #17: What to make of the Bharat Bond ETF

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On today’s show, Deepak Shenoy (CEO) and Aditya Jaiswal (Analyst) discuss the Bharat Bond ETF in detail.

Q) Will it provide the much needed liquidity to the debt market? Who are going to be the market makers?

Q) Is it a zero credit risk option? and what about the interest rate risk?

Q) Is it a good deal for the fixed income investors?

Q) Which option will suit you better, the 3-year variant or the 10-year variant?

Grab your popcorn and stay tuned, you are going to enjoy this one!

Let us know your thoughts!

Podcast #17: What to make of the Bharat Bond ETF

Transcript

Aditya: Hey folks, welcome to The Capitalmind Podcast. This is Aditya and as usual I’m here with the one and only Deepak Shenoy. So we’ll be talking about the Bharat Bond ETF today. Deepak, welcome to the show.

Deepak: Thanks Aditya. Lovely to be here. Lovely to talk about a new topic in town the Bond ETF. We talk about Bonds all the time. We’ve done a bunch of Bond videos. We are supposed to know a lot more of the topic. Let’s go on. I’m thinking we’ll learn more during this podcast or during the creation of this podcast that we had known about Bonds earlier. Let’s begin. Fire away.

Aditya: Yeah, so Deepak, we’ll start first with the what and the why. I was watching Radhika Gupta’s interview with CNBC and she made an interesting statement actually. I really liked it. She said, “Bharat Bond matures and operates like a Bond, is diversified like a mutual fund and trades on the exchange like a stock.”

Well, that’s a very interesting way to put it, but still, let’s not assume that the average investor knows what Bharat Bond ETF is. Could you please give us a brief about it?

Deepak: It’s a very interesting way to put it. I just will differ on the exact language, because I think what it does is behaves and operates like a tradable fixed maturity product. That means you have fixed maturity plans from mutual funds, which roughly do the same thing, but there are some restrictions in fixed maturity plans. Let me come back to that.

What happens is you want to buy a fixed investment product, like a fixed deposit to go to a bank. You say, “What will you give me for three years?” The bank says, “Well, I’ll give you 6.5%.” Then you say, “Okay, fine. I’ll give you my money for 6.5%.” Boom, boom, that’s done, but there are other companies like public sector enterprises, like REC or PFC or a bunch of other PSU enterprises, which are not banks.

They also borrow money from the market. They borrow it at a little bit higher than a bank would offer you. Now, you want to lend to them, because you’re like, “Okay, that’s a PSU that’s owned by the government of India. It’s safe in my view, at least. Therefore, I will be happy giving them money, because they’ll give me maybe 1% more than I would get in an equivalent fixed deposit from a bank.”

So how can I do it? Right now, you can’t really see much of a these Bonds or any rate fixed deposits, trading or hanging around. Many of them, when they do they offer very low rates or they don’t have enough volume for you to be able to buy enough of them for yourself.

The way the government is trying to do this is structured as such that all of them can issue Bonds, which is effectively borrowing. It will be bought by this ETF. You buy units of this ETF and you can buy it on the exchange or you can buy it through a fund of funds approach, where we will buy a mutual fund and that mutual fund buys units on the exchange.

Then the funds are used. The money, your money, which is invested is used to buy Bonds of not just one, but maybe 15 or 12 different issuers, which means it’s not concentrated on National Highways Authority or Rural Electrification Corporation, but about 12 different entities. Maximum that any entity can have is about 15%.

What happens is those Bonds keep upping interest. That interest is issued by the ETF, not by you. The ETF issues the interests, reinvests it and buys more of the same Bonds. And we come to how that mechanism works. We’d have more of the same Bonds and then it will… actually at the end of it, there are two Bonds, one is 2023, one is 2030. On those dates, they will mature and your money will come back to you.

Effectively, if you buy a Bond right now in the NFO, you will want to hold it until the maturity date you’ve bought for. In the middle, if you feel that “I need the money, I want to get out of this right now,” you can sell it on the stock markets or if you bought a fund of fund, you can sell it back to the fund of fund itself.

You will be able to exit, but you may not exactly get the kind of return you’re looking for if you don’t wait all the way or you may get a higher return. It just depends on the market, but this is a way for you to diversify your fixed income holdings. Longer term, if I don’t mind, something like 7% to 7.5%, I will lock in those years or close to those years right now. That may be an interesting product for you to look at.

Aditya: Before we move on to risks and other things that you want to talk about Bharat Bond ETF, let me ask a very new question. You talked about funds of funds. Who should invest in the ETF and who should invest in funds of funds? We know basically the funds or funds is for people who don’t have a demat account, but still a lot of people want to know this.

Deepak: Yeah, the simple factor is that you buy it as an ETF, if you buy it in the IPU, you will get the ETF in your demat account, you can sell it directly from your demat account. Whereas, if you buy the mutual fund, the mutual fund will then go and buy the ETF. The return that you get by buying the fund of funds can be substantially different because the expense ratio of… that means the expense, the mutual fund itself will have a certain expense ratio… The ETF has very, very tiny interest.

Aditya: It’s 5 bps for Bharat Bond, which is amazing.

Deepak: Very, very tiny, right? Because it’s like saying 5,000 rupees for 1 crore worth of investment. It’s a fairly small sum. It may be even smaller than that. I mean I don’t necessarily, I’m not going to fixate myself on the value itself. What I’m saying that there are two layers.

If you do the fund of funds, the fund of funds, will have an expense issue and then the ETF itself will have an expense issue. So they kind of add up if you use the fund of funds. If you use only the ETF, therefore you know, but the ETF has other costs because if you get it in your demat account and you want to sell it, they will be a demat charge for whenever you sell. That typically is 15 to 25 rupees. Let’s say you sell it in five days, you’ll pay 25 rupees into five, let us say, 125. So that’s a cost under demat fund, whereas there’s no such costs in a FOF. Simply put, forget all those differences. If you have a demat account and a trading account, you want to buy it in the demat ward, so buy the ETF. If you don’t have any of these, you don’t understand what these mean and still want to participate, do the fund of funds. It’s the same thing, nearly the same thing.

Aditya: When we talk about Bonds, we primarily talk about three risks. The credit risk, interest rate risk, and the liquidity risk. Now, at the outset, Bharat Bond ETF takes care of the credit risk since it will only invest in AAA rated Bonds of select PSUs, right?. But then there could be possibilities where a government company gets downgraded and then the EMC will have to mark down. So this is not a zero credit risk option, but what about the liquidity risk? Will there be enough liquidity in the market? And finally, what about the interest rate risk?

Deepak: So there’s two layers here, or maybe three or four layers of questions. The first one is credit risk. We believe that all public sector entities are risk free. But they’re not necessarily because we’ve seen government agencies in the past default, or at least temporary default.

Maybe they didn’t default eventually, but temporary default. I don’t know why it matters to you as an ETF holder, though. If you’re holding the Bond to maturity in all probability, it’s unlikely that the government company will default, but it could miss a payment in the middle. We’ve seen this happen in the past and when it does, the rating agencies will downgrade it. If they do downgrade it, this particular ETF has to sell it. It is not, it is compulsory that Bonds, this Bond, falls off the investment of AAA or maybe AA. I don’t know what the top limit is, but let’s say it falls off that limit. It’s got to sell it and if it does that, it’s going to lose money in the process of selling. It’s normal to hold that Bond to maturity.

Even if there is a temporary missing of even one single payment by a PSU for even a reason that might be very ordinary in the course of business. The problem is that risk now transfers to you. As an ETF holder, it will hurt you and if it’s a very temporary thing like one or two days, then it’s fine. It’s probably something in the last three or four months, then it will affect you definitely.

Second part is the liquidity risk and the interest rate risk. Now, interest rate risk is like this. Today, interest rates are X, tomorrow interest rates are X plus 2%, increases. Bond prices will fall by nature, but this affects you in one circumstance. If you want to get out in the middle, you find that other prices are lower than when you got in, so you make a loss. Now, you have to offset that for the fact that these coupons will keep coming in, which means to interest rates so if I take something at 7% interest, in one year 100 rupees has naturally become 107 rupees. Then if the Bond price falls back to 100, I’ve not made a loss, I’ve just lost the interest for a year. So, in a way, I get protected a little bit from the interest rate risk by the fact that there’s a coupon that’s being earned during this process. Mostly in opportunity costs that might have gone astray.

The other thing is the interest rate can work in your favor as well, where the interest rates continue to fall and these Bond prices increase. Now, as every day passes, buyer interest rate risk decreases. Why? Because now we’re closer and closer to maturity. So if you’re 2023 Bond ETF, in 2020 there’s a residual three years left, so the impact of an interest rate hike will actually be quite dramatic. But in 2022, if the interest rate goes up, you’re most likely going to see almost no, or little, impact because only one year is left. And when a Bond is going to mature and going to pay you 106 rupees, when one year ago it was trading at, say, 100 rupees, if the interest rate goes up by one percent also, the Bond will fall to only maybe 99 rupees, 50 paise. It’s just the way the Bond reacts. It’s going to be a lot lesser when there’s only one year left to maturity, versus when there are three years left to maturity.

In this duration fixed ETF, there is not residual duration, which happens when you buy mutual funds in general, if you buy an ultra short-term fund, or say, short term fund. A short term fund has about, say, three years left. It will have three years left if you buy it today. That is the way the Bond is structured, but even three years later, it will have replaced some Bonds with another set of Bonds, which mature another three years later. There’s always a residual duration risk. Here there isn’t one because the residual duration does not exist. The Bond fund, ETF is not allowed to buy any Bonds that mature after the maturity rate of the ETF.

If 2023 means 2023, the maximum maturity you can have of any of the Bonds are held by the ETF itself, this saves you a little bit, allows you to bring strategies that say, “Listen, I want something to mature in 2023, so I’m going to park my money until then.”

Third part is liquidity risk, and this has two layers. First, the liquidity risk of the ETF itself. If a lot of people start buying the ETF, the market makers, which will come in and provide them the liquidity. They will sell them the units. Where will they get the units from? They will go to the ETF and say, “Listen, give me a unit.” Now these market makers can buy from the mutual fund directly, only if they have 25 crore worth of units required. They have to give 25 crores, take 25 crores worth of units and then supply the market with those units. 25 crore is a lot of money. Only when they see that kind of demand will they go in. And when you go in with 25 crores, what does the ETF do? It gets 25 crores of money. It has to now go and buy back Bonds in the market off the same PSUs, those 15% NHAI. What if those Bonds are not available?

The answer to that has been kind of sort of answered otherwise by saying, “Listen, we’ve talked to the PSUs and they will reissue to us, as the case may be, under whatever SEBI regulations will apply because they will not be allowed to issue to us on an individual basis. They will have to public issue it. Other people are allowed to subscribed, but we should be able to get some allocation out of that, and we should be able to scale up.”

It effectively says that they will use money to buy more and more of the same Bonds. There’s a liquidity issue there that they’ve solved in some way. There’s another liquidity issue, which is yours. As an ETF holder, if you want to sell. What if there’s not buyer? And that problem has been partial solved by them saying, “Listen, we have got a market maker, a set of market makers. One of them is an enterprise entity, one of them is a GM entity,” I think. They have identified these market makers to say, “If somebody wants to sell, this market maker has to go and buy at some price, and if somebody wants to buy, this market maker has to sell at some price.” Now, this price they give you is a bid and offer price. The bid price is the price at which they are willing to buy and the offer price is the price at which they are willing to sell. The market maker should be the best bid and the best offer. Effectively, that’s what a market maker does.

If the issue is intensely liquid, that means I am buying, you are selling, and we can both trade will each other, the market maker is not required. It’s only when there’s illiquidity is the market maker is required. No market makers have a risk, because tomorrow the Bond goes down. The market maker will be sitting holding all that inventory, and he can’t get rid of it. The answer to that would be then that people are to bid liquidity fast and then what the market maker will do if it’s not liquid is that he will quote it away widespread. He will say, “Listen, if the price is 100, then I will give you a buy at 95. That means you have to sell to me at 95, but you’re going to buy from me at 105.” I use that spread to offset my risk.

Aditya: So, I have to sell at a discount?

Deepak: Sell at a discount, buy at a premium. This happens in many ETFs.

Aditya: Then that defeats the purpose of buying these-

Deepak: Yeah, so we’ve got a bunch of ETFs that are currently listed on the exchange. There’s a bunch of ETFs. There’s, for instance, LIC G-SEC ETF. Six, eight months ago, we noted this. There was a 20% discount in the market. That means people who were selling at 20% below the price of the ETF itself. The ETF will announce its price on a real-time basis, on the Edelweiss Mutual Fund page, it will be a page. Every day it will be refreshed every 5 or 10 seconds. You’d be able to see the exact real-time NAV. That means, what the underline price should be. That price could be 100. You might find that the market price is 98, which means it’s trading at a discount. You can be a buyer at 98, or it could be trading at 102, which means there’s a premium. You could sell it at 102, but you have to buy also at 102, which is a secondary market premium.

Now, we’ve seen a lot of ETFs that sometimes traded at a premium, sometimes traded at a discount. We’ve seen as much as a 20 to 25% premium or a discount in many cases. With LIC G-SEC ETF, we’ve seen a 20% discount, with the Motilal NASDAQ 100, you should trade at a 15% premium. These values can vastly differ based on liquidity and how the market makers perform.

Today, both these ETFs, which I talked about just now have reduced, in terms of premium and discount, to the point where they’re trading maybe 1% away from the price. 1% is a reasonable price to pay. Now, you shouldn’t pay more than that. That’s a liquidity issue that I think we will have, and we have to see how this pans out. Although Edelweiss has given us a lot of confirmations that there will be more players here that will balance out the price, we’ll have to wait and see and that’s a risk that we haven’t yet figured out.

Aditya: So, Deepak, you talked about reinvestment. As we know, in this case, the ETF holder won’t be getting the interest. Basically the EMC will reinvest. My question is, how are they going to reinvest? Is there some sort of surety that they’ll get enough AAA rated Bond or can they go to AA as well?

Deepak: What we’ve heard so far is that the index, the underlying index itself, is constructed in a way that the entity has to continue to be a PSU, that is has to continue to have a AAA rating, that there should be no defaults. Therefore, if there is a default it’ll go away and that it’ll be rebalanced every three months.

All these factors tell us that there’s one particular aspect of it that is a problem, and we’ll come to that, perhaps the yield and how much return will you get. But this particular aspect of liquidity is based on a very particular set of numbers. The way you look at it is you say, “Okay, I’m going to get 6.5%.” How do you calculate 6.5%? You say, “Oh, this Bond yields 6% and it’s valid until 2023 and some other Bond is…” There are a 50 such Bonds in each of these ETFs.

Aditya: The 3 year one has 50 Bonds.

Deepak: Not all of the Bonds mature on the expiry date of this 2023. Some of them mature in April 2022 as well.

Aditya: Yes, we saw that.

Deepak: And we did see this aspect of it introduces another layer of risk, and I will come to that as well. But because of these Bonds, these 50 Bonds may not all be available at the same time. What Edelweiss will have to do is go and talk to the issuers and say, “Listen, I want more of these Bonds,” and “Please issue because I have ETF investors waiting.” And those people will have to issue more Bonds, so there’s an upper limit to this because at some point NTPC will say, “Listen, boss. I don’t care if you’re ETF is getting so much money. I am not issuing any more. Why? Because it’s screwing up my debt ratio.” At some point event the ETF says, “I have the right to say I will not issue more units, because I can’t. If the underlying guys are telling me they don’t want anymore debt from me, I can’t keep issuing units. So, I have the right to say no.” There is that liquidity, extreme liquidity. If you think that everybody and his uncle is going to jump on this bandwagon, it’s a risk to you, not to the ETF, or to NTPC, or to NHAI. It’s your risk that happens.

Aditya: You talk about the yield. The indicative yield for the 3-year variant is 6.69, and for the 10-year variant, it’s about 7.58. Since the Bonds are awaiting maturity, what is the extent of variation we can expect in the actual yields?

Deepak: This is quite interesting because 6.59 is not fixed. We know that for sure in this case. But you see, when you buy a fixed maturity plan they’ll give you an indicative yield, and roughly after the fixed maturity plan can only be subscribed to once and then it has to be held for three years. It’s supposed to be listed on the exchange, but hardly any transactions happen. But you can’t enter it after the NFO date. That means the new fund offer date. After that you can’t buy any more units, not from the fund house.

Aditya: You have to buy the ETF?

Deepak: This is for a fixed maturity plan. What I’m saying is the ETF is different in the sense you can buy more ETF units on the exchange. There is a possibility the ETF can issue more unites tomorrow, whereas in a fixed maturity plan, you have to issue all the max, all the units on the first date itself. Now, when you issue all the units on the first date itself, you know exactly how much money you have. You can go to issuers and say, “I have this much money exactly, and I want a Bond maturity exactly three years from now, which gives me this benefit.” Therefore, you can time and tell, go back to investors and say, “Listen, we did all this and we’ve got a yield of 7.5%,” and you will get 7.5% minus some transaction fees, roughly.

That is how the structure works, but in this Bond ETF it’s not like that. Why? Because, first of all, there are new issuances that could happen because more people can come in after the Bond ETF appeal, which means after that day when the Bond ETF lists on the exchange, more people can go buy in the exchange. The market makers will then fulfill those investors with units. They will go back to the ETF and say, “Listen, we want more units because people are demanding so much.” When the new units are created, though, that money is used to buy more Bonds. When they buy more Bonds they could actually buy at a different yield. What is promised to you at 6.5% by that time could become 6.1%.

Aditya: Or maybe 5.1%.

Deepak: Yes, may be. You eventually get a lower yield so your average yield will change. Second. This is based on an index that rebalances itself every three months, which means after three months, if there is one Bond that has gone from 15% of the index to 20% of the index, the index will rebalance it back to 15%. How does that mean an ETF? I have Bonds that are 20%. I have to bring them down to 15%. I have to sell 5% of those Bonds, and I have to buy something else. I have to do this shifting in the market. That activity itself creates some issues, and then you may not get the exact prices that you would have thought you would have got.

Secondly, the rebalance itself ensures that the effective yield you get could be very different from the yield at the time that you entered, which means 6.5% is not ‘Pakka’.

Third thing is, you’ve got these two factors that’ll harangue investors in terms of, “Oh, I’m not exactly getting…” The third thing is a maturity deal. Like you rightly pointed out, some of the 2023 ETF Bonds mature in 2022 April. That’s one year prior. If you’re in a three year Bond and something matures one year earlier, 1/3 of your yield is coming from an unknown point. Why? Because in 2022, when this one matures, I have to reinvest the money for one more year as an ETF. What will I do? I will go to the market and buy whatever is available, or the index will tell me what I have to buy.

Aditya: Which is maturing on 2023.

Deepak: So, they give you a one-year fixed deposit of sorts, or a Bond of sorts issued in or available in 2023. Now, even today, a one-year Bond of a PSU is trading at maybe 5.8%. At that time, if it’s trading at 5.4%… You’ve got two years of a 6.5% yield, one year of a 5.4% yield, which means your blended yield of the period in consideration is lower. Now, luckily there are 50 different instruments. They measure at different points in time, some of them in April 2022, some of them in January 2023. Blended-wise the risk is a little bit lower, but there is a risk. That means 6.59% or 6.6%, which they have suggested today, is not going to be the yield that you’ll get to maturity. It will be different. If you have ETF and you need to understand that this variation is going to happen more on the 2023 Bond than on the 2030 Bond. I believe that the real Bond here is the 10-year Bond, that the 3-year Bond should not be bother about. It’s only there because people want to use a tax arbitrage, but the real value is in the 10-year Bond.

Lock in yield for 10 years. If you fundamentally believe that interest rates will go down, I think this is a great product to kind of lock in those yields because all these risks I am talking about liquidity, about rebalancing, about maturity matching.

Aditya: Is only applicable if you want to exist in between, right?

Deepak: In between is one layer, but even if you held to maturity, the yield would not be the same, but it’ll affect the 2023 Bond, which is the 3-year ETF a lot more than it will affect the 10-year ETF. The 10-year ETF will allow a much lower actual impact. You can say that the 7.5% I’m getting is more reliable as an indicator than the 6.5% they’re telling us for the 3-year ETF.

Aditya: Let’s come to that taxation part. We know that FDs are taxed at your slab rate, but that funds, if held for three years, are taxed at 20% with indexation benefit. Now, my question is, suppose I do not participate in the NFO, but I buy the three-year variant after one year, and I hold it until maturity. I won’t get the 20% tax rate benefit, right? Even if I hold it until maturity because I bought it after one year. Now, does it look attractive to me?

Deepak: It’s interesting because then it becomes a 2 1/2-year or 2-year product, because if the Bond is maturing in April 2023 you still have about four months to buy it in the exchange. To continue to get the same indexation benefits, that means you have to hold it for three years. If you are to buy, you are to buy it before April 2020, which is in the next three months. If you buy it in the next three months, you will get the same benefits as anybody buying in the NFO. That is for sure. After that you will not get the indexation at all because even if you held it for two years, you won’t get two years of indexation, because you have to hold it for a minimum of three years to actually get any indexation benefit because less than three years is a short term indexation.

Then you will compare it directly with a fixed deposit and say, “Fixed deposit, give me 5% here, I’m needing 6%. I will choose this because it’s like a two-year fixed deposit of public sector entities”. If it is more than 3 years, which is again I why the 10-year product is attractive because you don’t have to rush to buy it in the next four months. You still have some time before this kicker kind of kicks in. So the tax benefit makes a lot more sense to look at if you’re looking at a longer term product, where you’re locking in the yield. Remember, also, that the tax benefit is very different for different people. If you in the 10% or less slot, you probably don’t care… In effect, you may not want this product because there are other products like a PPF, which is giving better, more tax adjusted returns. You want to finish those avenues before you get to this product.

A 10-year product locked in at 7.5% is not actually comparable to, I’ll close now, to a PPF kind of a product. If you have the 10-year maturity in mind, that is when you want to lock in for a longer term on these products. You can buy it now, and what’s actually really beneficial is you should actually buy it in a kind of SIB mold if you’re looking… So, for instance, I’m 45, and if I want liquidity when I’m 55, I can actually build towards it by buying, on a regular basis, this ETF every month and that will give me a way to say, “Listen, I need a bunch of liquidity when I’m 55.” And that may be the time when my kids have grown up and left and I have this empty nest problem and I want to travel the world and I want a safe product to pack my money in so that I’m sure I’ll get that money at that time.

Good way to look at a product is it’s going to give me liquidity in 10 years and I want some level of safety and I want some level of returns which I can kind of predict. Well, nothing else exists in the 10-year timeframe where you can predict it. I would say this is a good product for those kind of people.

Aditya: I know, Deepak, you’re writing a post on this. I am looking forward to that. We’ll close this discussion with one question. Who should buy, according to you, who should buy that 3-year variant and who should buy the 10-year variant? I mean, you already discussed it that people who are looking for a long-term option can go for the 10-year variant.

Deepak: I definitely think the 10-year variant is the most interesting because it gives you enough time. You could actually balance between debt and equity like this. Say I’m investing debt and equity. I’ll put in 10% of my money in the 10-year Bond, a 10-year variant for 90% in equity. Over time, I will slowly take money out of the equity portion and start moving more and more toward debt part. This is a way for me to construct an avenue that says, “In the initial years I will be high equity and towards the later years I will be higher, higher on debt, simply because I want to ensure liquidity in the longer term.” It gives my equity investment some time to perform, maybe five to six years, and after that I get more and more into debt.

It’s useful to construct products like this and I hope they come out with variants like 15 years, 5 years, so we can build a ladder. I could actually then tell people, eventually once the product ladder has been built up, saying, “Listen, I will ensure liquidity for you every two years.” As an advisor, I could actually build a product portfolio that said, “You want money when you’re 44 for your kids’ education. You want money when you’re 46 for a certain holiday you’ve been thinking of. You want money at the age of 57 when you’re going to retire. We’ll plan this out through a series of Bond ETFs, which all mature at that time, fairly safe.” I know this and I can reasonably and closely predict, perhaps, the kind of yields that I might get, so I can actually accurately plan and think that, “Okay, 100 rupees. How much will that actually become by that time, roughly?” I don’t need an exact number.

You don’t want exact numbers. If you want exact numbers, go buy a fixed deposit or a fixed maturity plan because that’s better, but if you don’t care about really fixed numbers, you don’t mind a little bit of variation, you want some safety, you’re looking at some layer of liquidity, which is really, “Some bad things happen in my life. I’d really want to be able to get out,” this product is for you. I think the 10-year product is far more interesting. The 3-year product is there. It’s going to be valuable for the next four months. After that it’s going to lose value. In my mind, that does not form a great investment product because we talk about it in four months it’s like, “Oh, it’s like just another fixed deposit.”

That is not so interesting to me. It’s like if you want to pack your money for exactly three years. Who knows that you need to money in exactly three years? I think three years is too short a timeframe, unless you’re like 57 and saying, “I want to retire at 60.” Then it makes sense for you, but very few people will have that problem. Other than that, I think if you have a 10-year runway to buy this product, this is great.

Senior citizens should actually consider other schemes before getting into this product. There is a PMVVY, there is a Senior Citizen Saving Scheme, both of which currently offer more than 8% all around, which they should exhaust. That’s like 30 lakhs per person that they should actually exhaust before thinking of this.

For younger people, you have the PPF, which still continues to be attractive at 1 1/2 lakhs a year. That should be your primary parking place before you visit such things. That’s just about as safe and it’s directly from the government other than going through a PSU ETF.

Once you finish those avenues this is a great product to look at. You should look at maturity matching, you should look at a timeframe that says this 10-year thing makes sense and add 10 years to your age. Would liquidity look good in that time? Is there a reason you want that liquidity? Then you should buy this product.

Aditya: Okay, awesome Deepak. We had a great discussion. I hope our listeners enjoyed it as well. Thanks a lot. Thank you for answering all my questions, and I would like to thank our listeners as well.

Deepak: Thanks a lot for listening, and thanks Aditya for all the questions. I think, as usual, @capitalmind_in on Twitter, and I’m at @deepakshenoy and Aditya is @AstuteAditya. We’d love to hear what questions you have. We’ve hoped to answer some of them in this podcast. We will answer more as we go by. Captialmindwealth.com and capitalmind.in are our websites. We run a portfolio management service where we invest on behalf of our customers. We also run capitalmind.in, where we provide information, research. Check us out. Tell us what you think. Thanks for listening.

Aditya: Thanks a lot.

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