The government’s Central Public Sector Enterprises based Exchanged Traded Fund (CPSE-ETF), a part of larger disinvestment program of Ministry of Finance, opened on Tuesday. Reliance mutual fund aimed to raise up to Rs 4500 crore through the CPSE ETF. The issue opened for anchor investors on Tuesday , who put in Rs 6000 crore against Rs 1,500 crore reserved for anchor investors. Nomura, Morgan Stanley, SBI, LIC, Axis Bank and Birla MF were some of anchor investors.
The earlier issue of CPSE ETF, launched in March 2014, had raised Rs 3000 crore. CPSE ETF gives investors an opportunity to invest in Public Sector Undertakings (PSUs) through the ETF route. The ETF has exposure to 10 government undertakings graded as Maharatna and Navratna companies. These companies can be broadly clubbed under the following four investment themes – energy, infrastructure and engineering and PSU financials. The issue will close on January 20th. Find out here if you should invest in it:
Opportunity to diversify
This product is an opportunity to diversify one’s portfolio across a number of government companies through a single investment structure. ‘Anyone who wants to add a flavor of diversified PSU stocks to their portfolio should invest in CPSE-ETF’, says Reliance spokesperson. The Further Fund Offer (FFO) also offers an upfront discount of 5 per cent to all categories of investors on the price. “If you do not have investments in the energy, oil/gas sectors, you can allocate some of your funds in this mutual fund”, says Hemant Beniwal, a CFP professional. If you have investments in diversified funds, you may invest a small sum in CPSE ETF as your downside will be cushioned, he adds. The CPSE ETF is Rajiv Gandhi Equity Saving Scheme (RGESS) compliant as well which allows first time investors to get taxation benefit upto Rs 50,000.
Impressive past performance
Retail investors, who stayed invested in CPSE ETF when it was launched earlier in 2014, have benefited from it. Since inception, the CPSE ETF has delivered 15 per cent, much higher than 8 per cent delivered by the benchmark (Nifty 50 Index) on CAGR basis. If we look at one-year performance, CPSE ETF generated returns of 17 per cent as compared to benchmark, which generated returns of 5 per cent on CAGR basis. Apart from exciting past performance and loyalty units offered, the low expense ratio of 0.065 per cent is quite attractive.
How much to invest?
The CPSE is a theme based fund that focuses on energy, oil and gas companies. Vidya Bala, Head-Mutual Fund Research at FundsIndia.com says, “Since this ETF is almost like a theme fund, one should not expose more than 10-15 per cent of their equity portfolio in this ETF. Only investors who have experience in the stock market and are willing to monitor the performance of the sectors (oil and gas and metals) in which the ETF has high weights should consider this.” It is imperative to decide to invest on the basis of your risk appetite. Beniwal suggests a similar approach,” You can invest a minor portion of your portfolio in the CPSE ETF provided you understand the risks that go with a thematic fund and commodity based stocks and do not have over exposure to PSUs and the energy sector.”
Beniwal says, that there is a lot of government involvement in major business decisions for these companies which can go either ways. However, based on past performance, he expects it to give good returns this time as well. Vidya Bala also advises to be cautious of the risks involved as it is a thematic fund. She adds, “For investors looking into investing for the long-term, it can be a high dividend yield portfolio as PSUs are typically high dividend payers. But the fund has not so far declared dividends, so one should not invest in the ETF expecting dividends.