The first Exchange Traded Fund (ETF) of Central Public Sector Enterprises (CPSE) is set to hit the market soon thereby providing investors an opportunity to take exposure into the 10 major listed public sector companies . The new offer will add to the long list of ETFs which has been dominated by Gold ETFs so far.
While the government recently approved the ETF plan for the PSUs, the CPSE ETF is an open-ended fund and the units would have a face value of Rs 10 per unit. According to the draft offer document filed by the finance ministry with market regulator Sebi, individual investors can invest a minimum of Rs 5,000 and the maximum of Rs 10 lakh in the fund. Non-institutional investors or qualified institutional buyers can invest in the ETF with a minimum investment amount of Rs 10 lakh.
The launch of the CPSE ETF is mainly aimed at monetising government’s stake in PSUs so as to meet the disinvestment target of FY14. The government has, so far, raised about Rs 5,093.87 crore through stake sales in PSUs. As per the revised estimates in the Interim Budget, the target was lowered to Rs 16,027 crore in this financial year from Rs 40,000 crore.
While the ETF, which is expected to hit the markets this month, it could fetch government Rs 3,000 crore. The fund will provide a new option to investors looking at putting their money in public companies indirectly.
What is ETF?
An ETF is similar to that of a mutual fund but trades like a stock on an exchange. The CPSE ETF will be listed in the National Stock Exchange and the Bombay Stock Exchange. Investors will be able to buy and sell units of the ETF, which will give them exposure to a basket of the 10 CPSE stocks.
ETFs were introduced in India in 2001. Currently, there are about 33 ETFs with assets under management of close to Rs 11,500 crore held by 6.2 lakh investors.
The ETF basket
The asset management company for the ETF is Goldman Sachs Asset Management (India) Private Limited. There are 10 stocks in the ETF basket, namely ONGC, Coal India, GAIL, Rural Electrification Corporation, Oil India, Container Corporation of India, Power Finance Corporation, Indian Oil Corporation, Engineers India and Bharat Engineering. Earlier, Power Grid Corporation was also in the basket but it has been dropped as the scrip has a one-year lock-in period since its follow-on public offer in December.
While several public sector companies own natural resources and have generated good returns for investors over the last 30 years, they also have high dividend payout, providing one more reason to the investors to invest in them. The fund will also qualify for tax exemption under the Rajiv Gandhi Equity Savings Scheme (RGESS) and offer tax exemption for first-time investors in equities.
Unit holders who wish to avail of the tax deduction under the scheme will be subject to lock-in-periods — fixed lock-in and flexible lock-in — as specified under the notified RGESS. The fixed lock-in-period shall …continued »