Definition
Bond ETF
A bond ETF is an exchange-traded fund that holds a portfolio of fixed-income securities, such as government or corporate bonds, tracking a bond index and trading on the exchange like a stock.
Indian bond ETFs include government-security ETFs and the Bharat Bond ETF series, which hold a defined-maturity basket of public-sector bonds and offer a target-maturity structure. They give retail investors low-cost, transparent access to a diversified bond portfolio that is otherwise hard to assemble directly.
Because underlying bonds can be illiquid and prices may not update tick-by-tick, bond ETFs can show wider premiums/discounts to NAV and a stale iNAV than equity ETFs. Target-maturity bond ETFs let investors hold to maturity for predictable yield, reducing interest-rate uncertainty if held through the term.
Related terms
- iNAV DisseminationiNAV dissemination is the publishing of an ETF's indicative net asset value at frequent intervals during the trading day, via the exchange and the AMC, so investors and arbitrageurs can see fair value in real time.
- Premium/Discount to NAVAn ETF trades at a premium when its market price is above its net asset value and at a discount when below, reflecting temporary imbalances between on-screen supply and demand and fair value.
- Liquid ETFA liquid ETF is an exchange-traded fund that invests in very short-term money-market and overnight instruments, used by traders to park idle cash and even as collateral or margin.
- Target Maturity FundA target maturity fund is a passive debt fund or ETF that holds bonds maturing around a fixed future date and tracks a bond index, offering predictable yield-to-maturity if held to the target.
Plain-English explainer from The Dispatch Investors Encyclopedia. General information, not financial advice.