MCB India Sovereign Bond

The world’s first Exchange Traded Fund to provide international investors access to the Indian Sovereign Bond market.

Tapping into the growth potential of India

India is an investment grade country (S&P BBB-) that offers unprecedented investment opportunities to investors. The country is expected to be the fastest growing economy in the world to 2026 *, with an average GDP growth rate of 7.5% per annum to 2021 according to the International Monetary Fund.

* Research published by the Center for International Development at Harvard University, May 2018

Objective of the MCB India Sovereign Bond ETF

To provide investors with regular short term returns through the payment of half-yearly dividends and longer term capital appreciation by replicating the ZyFin India Sovereign Bond Liquid Index, which tracks the performance of the most liquid, fixed rate, INR-denominated bond issued by the Government of India.

MCB India Sovereign Bond ETF is the world’s first Exchange Traded Fund to provide international investors access to the Indian Sovereign Bond market. There are multiple reasons why investors globally are increasing their exposure to Indian Sovereign Bonds.

Investment grade status

India is an investment grade country (BBB- by S&P, Baa2 by Moody’s) and has not been downgraded for over a decade.

High GDP growth

According to World Bank data, India is now the third largest economy in the world, the country’s nominal GDP having grown more than 11-fold from 1982 to 2017 to reach US$2.6 trillion. The IMF forecasts that India’s economy will grow by 7.5% annually between 2018 and 2021.

India’s sovereign debt market is also the third largest amongst Asian peers and is opening up further to foreign investors.

Favourable demographics

India ranks number 2 in the list of countries by population. Its population is equivalent to 17.74% of the total world population as per United Nation estimates, and growing at a rate of 1.1% per annum. India has a low dependency ratio and a growing young population has increasing access to education and the country’s middle-income class is growing, creating a need for new and better infrastructure, which will partly be financed through the debt market.

Attractive yields

Yields on India sovereign bonds remain attractive over the long-term in USD terms with an annualised return of 6.25% per annum achieved on 10-year bonds over the last 17 years (1999-2016) **.

** Source: S&P BSE India 10-year Sovereign Bond Index (USD)

The main objective of the MCB India Sovereign Bond ETF is to provide investors with regular short-term returns through the payment of half-yearly dividends and longer-term capital appreciation by replicating the Zyfin India Sovereign Bond Liquid Index which tracks the performance of the most liquid, fixed rate, INR-denominated bond issued by the Government of India. The objective of this ETF makes it suitable for institutional and individual investors:
  • Looking to access the Indian sovereign bond market, thereby diversifying their fixed income portfolio
  • Looking for regular returns in USD from coupon income and potential long-term gains from capital appreciation of the underlying bonds
  • Having an investment horizon of at least 5 years

The Index, which is developed by ZyFin Research and maintained by an independent Index Committee, is a comprehensive, transparent and rule based benchmark of the Indian Sovereign bond market. For Index tracking purposes, the Fund will assume that all dividends are re-invested. The Index tracks total return performance of the most liquid fixed-rate, INR-denominated sovereign bond issued by the Government of India. Using the most liquid bond makes the index replicable and investable. The investment universe of the ETF is typically Indian government bonds with residual maturities between 8 to 13 years meeting also the following criteria.

The bonds must:
  • Have principal and interest denominated in INR
  • Be fixed-coupon bonds with semi-annual coupon payment frequency
  • Have an outstanding amount in issue of at least INR 50 billion
  • Have traded for at least 50% of business days in the month
  • Not be special bonds (such as Oil Bonds) issued by Indian Government
  • Not be in FII Restriction (Negative Investment) list

Attractive yields

The Indian Sovereign Bond market has a strong track record of offering attractive yields to investors. Annualised returns on 10-year bonds over the last 17 years (1999 to 2016) amount to 6.5% p.a. in USD.

Low minimum investment

Access to the main board of the Indian Sovereign Bonds market require a minimum of INR50 million, equivalent to around US$750,000 today. Smaller amounts can be traded on the odd lot board, but liquidity is poor and yields are less attractive. MCB India Sovereign Bond ETF allows investors with as little as USD10 (the indicative price of 1 share) to have access to the main board.

Low cost structure

There are no entry and exit fees applicable on MCB India Sovereign Bond ETF. The Total Expense Ratio of the ETF is 0.99% p.a. Transaction fees on fixed income ETFs has been reduced to 0.10% per trade.

Favourable Tax Regime

MCB India Sovereign Bond ETF is domiciled in Mauritius and authorised as a Global Fund. As such, it benefits from the taxation treaty between India and Mauritius whereby all capital gains are currently exempt and income is taxed at 5%.

Seamless access to a highly regulated market

Ownership by foreign investors is limited on Indian government bonds due to complicated and lengthy regulatory approval processes. MCB India Sovereign Bond ETF provides a seamless access for investors to this highly-regulated market.

Investment into the Fund involves risks and should be made only after consulting with independent, qualified sources of investment, legal, tax, accounting and other advice. Any past performance figures published on this website are not to be taken as a guide to future returns. As is true of any investment in collective investment schemes, investment in the securities herein is not guaranteed. The value of the investment and the income therefrom may go up as well as down and the investor may not get back his initial capital. In certain circumstances an investor’s right to redeem his investment may be suspended. MCB Investment Management Co. Ltd, MCB Stockbrokers Ltd and MCB Registry & Securities Ltd are licenced by the Financial Services Commission (FSC) respectively as CIS Manager, Investment Dealer (Full Service Dealer Including Underwriting) and Registrar & Transfer Agent. The MCB India Sovereign Bond ETF is authorised by the FSC as a global open-ended Collective Investment Scheme. The main risks factors to be considered when investing into the Fund are summarised below. Please refer to the Prospectus for further details.

Market risk

The performance of the Fund will be dependent on the performance of the underlying bonds and the movements in the USDINR exchange rate. The value of the Fund will fluctuate as a result of changes in market prices.

Interest rate risk

The Fund is invested in bonds, the values of which usually rise and fall in response to changes in interest rates.

Currency risk

Investments will be made in bonds denominated in currencies other than the base currency of the Fund. Fluctuations in the external value of Indian Rupee for a Non-Indian Rupee based investor who has not hedged the risk may cause the value of his investment to fall.

Emerging markets risk

Investment in emerging markets such as India may subject the Fund to higher risk of loss than investment in developed markets. This is due to, among other things, greater market volatility; high levels of inflation, deflation or currency devaluation; restrictions on purchases of securities by foreign investors; the imposition of currency or capital controls or the expropriation or nationalisation of assets; political, social and economic instability; uncertainty and unexpected variations in the application of tax rules.