In 1993 Mr. RH Patil (now late) was trying to convince me that NSE will create a robust debt market – Retail and Wholesale. There are too many reasons why this has not happened. Neither will it happen. Why it will not happen is a book in itself.

So we do not have a classic, robust, active market with a very low bid ask spread. There is no major market driven price discovery mechanism. Real estate is too somewhat similar. On the same day 3 of us can buy different properties at different locations in the same ROAD and pay different prices. Oops no price discovery in a transparent manner.

So when I launch an ETF I will not surely have a great market price discovery mechanism simply because the underlying assets are not really traded. In a typical fashion a few people will come and buy or sell. So I may have a small portion invested in 3 year and 10 year etf. I will accept the following:

a) there is risk in my portfolio

b) I do not take ratings very seriously

c) I do not trust the PSU structure

d) Our debt regulator hates transparency and will never ever allow a secondary market

e) I understand that an ETF with poor liquidity in the underlying assets is terrible..

f) Comparing Equity etf to debt etf is stupid, as the underlying market is non existent in debt

g) If I lose all the money in the ETF it will not change the amount of sleep I get each night.

h) I will be able to hold the ETF to maturity and I will use it for laddering as the bonds become a series.

I only hope that the bond market regulator gives up some ego and allows a bond market to develop. Nsc, kvp, etc. can be easily made into a traded instrument, however the govt will not. If the ETF becomes more popular the govt will introduce a stamp duty of 0.5% – and the govt’s greed will kill the product. I know these risks, but will live with them.

If it gets too popular the govt will increase the capital gains tax on bonds, and we will get lesser yields.

If a PSU company defaults I have no clue what recourse the bond trustees have and what remedies they will seek. To give a related example it you are a 73 year old Air India employee (ex employee) it is not easy to get a hospital to attend to you. Air India’s inability to pay the hospital hits them hard.

I am not a PSU fan. I do not have too much appetite for debt. So I will not put fresh money in debt funds – etf or whatever. This is not a reflection on the quality of bonds on offer, or the underlying assets,,,,,…………or whatever.

The Mutual fund industry fancies that it is the most secure, most transparent, etc. However I found too much usage of words like sovereign, psu, safe, ….and people are being not to ask questions like –

a) what is the MTM risk? how can it be over come?

b) what is the interest rate risk?

c) what happens if one or more instruments were to default?

d) why is it being shown as an alternative to a SBI Fd? Is it really a substitute?

Honestly, I do not have answers, nor am I seeking it.

I have not mentioned any names. Any semblance to any product on offer or not on offer…is sheer coincidence.

Fairly obviously this is not a paid post. Nobody pays me for posting!! I love it that way. I write my own shit fund. Mostly not sponsored…