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Tabula Launches Investment Grade Short Duration Indian Government Bond ETF

Tabula Launches Investment Grade Short Duration Indian Government Bond ETF

Tabula Investment Management launches a new ETF, the Tabula FTSE Indian Government Bond Short Duration UCITS ETF, offering international investors access to high-yield, short-duration Indian government bonds.
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31 JAN, 2024

By Johanna Zidani from RankiaPro Europe


European ETF provider Tabula Investment Management Limited has introduced a new Exchange-Traded Fund (ETF) targeting international investors seeking exposure to investment-grade Indian government bonds. The Tabula FTSE Indian Government Bond Short Duration UCITS ETF, listed as TIND LN on Bloomberg, aims to offer an efficient and liquid means of accessing the world's fifth-largest and rapidly growing economy. This move is strategically positioned to capitalize on capital inflows as major emerging market bond indices, including Indian government bonds, gain prominence.

Opportunities in the Evolving Indian Bond Market Landscape

Tabula's newly launched ETF, with a current yield of 7.1%, exclusively invests in Indian Rupee (INR) denominated government bonds issued by the Reserve Bank of India. The fund follows the FTSE Indian Government Bond FAR Short Duration Capped Index, concentrating on the 0.5 to 5-year segment of the market while excluding long-duration bonds. The decision to focus on short-duration bonds is aimed at providing investors with an optimal balance of yield and reduced duration risk.

India, until now excluded from major emerging market bond indices, is set to witness a pivotal shift as JP Morgan plans to include the country in its widely tracked emerging markets government bond index. The resultant influx of capital is anticipated to have a positive impact on the Indian Rupee, bond prices, and the overall economy.

Quoting Tabula CEO Michael John Lytle, "India is one of the largest and fastest-growing countries. It has an investment grade credit rating and a liquid and transparent bond market." He emphasizes that, until recently, foreign investment in the government bond market was limited. However, with the relaxation of restrictions in 2020 through the introduction of Fully Accessible Route (FAR) bonds, foreign investors now have access to over 20% of the US$1.1 trillion market.

Strategic Focus on Short Duration Amidst a Flat Yield Curve

The Indian government bond yield curve has exhibited a flat trend at the long end for over a decade. Currently, a significant 66% of the broad market index comprises bonds with maturities exceeding five years, posing additional duration risk without adequate compensation for investors. Tabula's ETF strategically addresses this by concentrating on the 1-5 year segment, generating a yield comparable to the broad market index but with substantially lower duration.

Stefan Garcia, Chief Commercial Officer at Tabula Investment Management, highlights the significance of the ETF in anticipation of the expected inflows. "As Indian government bonds are added to global emerging market bond indices in the summer, inflows of over $35bn are expected over the next 18 months." He asserts that Tabula's ETF offers a highly efficient, liquid, and transparent avenue to participate in both the India growth narrative and the anticipated wave of capital inflows preceding the country's inclusion in the EM index.

The Tabula FTSE Indian Government Bond Short Duration UCITS ETF, listed on the London Stock Exchange, boasts a total expense ratio of 0.39%, providing investors with a cost-effective vehicle to navigate the evolving landscape of Indian government bonds.

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