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Vishal Teckchandani is a journalist with InvestorDaily, a Morningstar publication.

Fixed-income exchange-traded funds (ETF) could hit the local market by the end of year if changes to the Australian Securities Exchange's (ASX) AQUA market rules gain ASIC approval.

Under the ASX's current AQUA market rules, only equities, currency and commodities-based ETFs could be quoted on the exchange, but not fixed-income products, ASX AQUA and warrants manager Stephen Small said.

"We have been working closely with ASIC in order to change the ASX AQUA market rules so that fixed-income ETFs could be quoted on the ASX," Small said.

"The wording of the new rules is close to final, but still needs ASIC's final approval. We hope to get approval by the end of calendar year 2011 so we can work with issuers in order to have fixed-income ETFs quoted on the ASX."

The ASX AQUA market is a rule and market framework designed specifically to allow the quotation of managed funds, ETFs, exchange-traded commodities and structured products on the ASX.

Small said the rules proposed by the ASX would allow providers to list Australian or international government, semi-government and corporate bond ETFs.

Fixed income accounted for about $232 billion of $1.39 trillion invested in ETFs globally, according to asset manager BlackRock.

ETF take-up in Australia had grown 70 per cent annually over the past three years to nearly $5 billion in assets, Tria Wealth Management said in April.

Small said there was significant demand among investors for fixed-income ETFs and it was no secret major issuers were considering launching bond ETFs as part of their product suite in the future.

"We are aware of providers looking to build an ETF tracking the UBS Composite Bond Index, which is a common bond benchmark in Australia and one used by many unlisted managed funds," he said.

Vanguard head of product management and development Robyn Laidlaw said bond ETFs could benefit self-managed superannuation funds (SMSF) in particular because they offered ease of access, diversification and tended to charge low fees.

"We think the SMSF sector will also be increasingly seeking retirement income solutions, so fixed-income ETFs could potentially play a role there," Laidlaw said.

ETFs listed overseas, such as the SPDR Barclays Capital Short Term Corporate Bond, Vanguard Short-Term Government Bond Index and PIMCO 1-5 Year US TIPS charged fees ranging from 13 to 20 basis points, according to Morningstar.

However, the key difference was that ETFs offered much greater transparency, Morningstar co-head of fund research Tim Murphy said.

Russell Investments ETF business and product specialist Bronwyn Yates said bond ETFs would allow financial advisers and investors to build fully diversified portfolios by using the low-cost solutions.

"We anticipate that we will also see interest at the dealer group level from a model portfolio perspective," Yates said.