NIFTY Bharat Bond Index Futures in GIFT City: Can this be the gateway to the fixed-income market in India for NRIs?

The NIFTY Bharat Bond Index Futures, introduced in GIFT City, marks a pioneering development in India's financial markets. Launched on December 30, 2024, this innovative product offers investors a robust mechanism to access and manage fixed-income securities, seamlessly combining stability with flexibility. Designed to meet the needs of non-resident Indians (NRIs)and global participants, it opens new avenues for engaging with India's fixed-income market.

By combining AAA-rated bonds from public sector enterprises with a futures product, these contracts provide Non-Resident Indians (NRIs) and global institutions—a robust mechanism to engage with India’s fixed-income space. 

Key features of NIFTY Bharat Bond Index Futures

• Underlying Asset: NIFTY Bharat Bond Indices (April 2025 and April 2033). Each index corresponds to a basket of AAA-rated bond maturities on specific dates.

• Exchange: NSE IX. This is the international segment of the National Stock Exchange (NSE), specifically for global investors.

• Currency: US Dollars

• Daily Price Limit: ±3%, expandable in extreme conditions

• Settlement: Cash-settled

• Lot Size: US $10 multiplied by Index Points

• Tick Size: US $0.0025

• Expiry:

• Monthly Contracts: Last Thursday of each month

• Half-Yearly Contracts: Last Thursday of June and December

• Trading hours: 9:00 AM to 5:00 PM IST

Why NIFTY Bharat Bond Index Futures?

The Bharat Bond Index was launched on December 4, 2019, by the National Stock Exchange (NSE). It was created to provide a benchmark for the performance of bonds issued by Central Public Sector Enterprises (CPSEs), Central Public Sector Undertakings (CPSUs), and other government organizations. It reflects the performance of bonds with a defined maturity. It was introduced to address the need for efficient, predictable, and accessible fixed-income investment opportunities.

The introduction of these futures in GIFT City underscores a commitment to providing global investors with structured, liquid, and efficient tools for:

• Credit quality: The underlying assets of the NIFTY Bharat Bond Index Futures are bonds rated AAA, the highest rating given by credit rating agencies. This rating indicates a very low likelihood of default, providing a safety net for investors.

• Hedging interest rate risks: Investors can hedge their bond portfolios against rising or falling interest rates.

• Speculative trading: Professional traders seeking to profit from short-term interest rate moves can use these futures within a regulated, transparent environment.

• Diversification: High-quality Indian bonds (AAA-rated) provide a stable source of returns. For an NRI with a global portfolio, adding Indian fixed-income can enhance diversification and reduce overall portfolio volatility.

• Cash settlement: As these contracts are cash-settled in USD, there’s no complex delivery of bonds. This feature is appealing to investors who want exposure to Indian bonds without dealing with domestic custody or dematerialisation processes.

Bharat Bond ETFs

For investors within India, Bharat Bond ETFs provide a complementary pathway to engage with the same high-quality fixed-income securities. The first Bharat Bond ETF was launched on December 12, 2019. This ETF was designed to replicate the performance of the Bharat Bond Index, providing more investment choices to fixed-income investors.

Bharat Bond Index Futures vs Bharat Bond ETFs

While both Bharat Bond ETFs and NIFTY Bharat Bond Index Futures track the same underlying Bharat Bond Indices, they serve complementary purposes, catering to different geographic markets:

How the NIFTY Bharat Bond Index Futures benefit the market

The launch of index futures has historically been associated with improved market efficiency. In India, since the introduction of index futures in 2000, these instruments have facilitated quicker price adjustments to new information, implying that the market can respond more effectively to economic changes, leading to a more dynamic trading environment. The NIFTY Bharat Bond Index Futures are expected to continue this trend by providing a structured platform for price discovery in the fixed-income space.

The introduction of index futures has also led to a reduction in spot market volatility, according to an RBI-published research paper. By allowing investors to hedge against potential price fluctuations, these futures contribute to a more stable market environment. The NIFTY Bharat Bond Index Futures, by tracking AAA-rated bonds from public sector enterprises, further enhance this stability, as these bonds are less susceptible to market shocks compared to lower-rated securities.

Conclusion

The introduction of NIFTY Bharat Bond Index Futures is a landmark step in India’s drive to expand its fixed-income derivative offerings. By listing these AAA bond-based futures on NSE IX in GIFT City, regulators offer a seamless on-ramp for NRIs and global investors seeking stable yields, interest rate hedging, and exposure to high-grade Indian public sector bonds—all in US dollars.

For institutional players, this means a structured, liquid, and transparent environment to manage interest rate risk or take speculative positions on bond price movements. For NRIs, it opens a gateway to Indian fixed-income markets without navigating all the complexities of domestic bond trading and custody.

Ultimately, whether you’re an institution or an NRI exploring new opportunities, NIFTY Bharat Bond Index Futures empowers you to approach India’s debt market with greater flexibility, strategic control, and potential for optimised returns addressing the nuanced needs of diverse investor segments.