March 17, 2019
Posted by: Umesh Paliwal
Categories: Featured, Mutual Funds

28 Comments

The Govt. of India needs money to run, manage, and expand the economy of the country. The Govt. earns money mainly through Taxes and Disinvestment (selling their shares in Govt. PSUs to Public).

A disinvestment is a tool via which Govt. sells its stakes in the Stock Market and in return gets the desired funds. Therefore, in 2014 the Govt. has launched CPSE ETF. The CPSE ETFs in 2014 was listed at 10% gain at 19.45 against an offered price of Rs.17.45. Till then 3 tranches have been launched and in every tranche, the govt has offered a discount of 5%, 3.5%, and 4.5% respectively. The Govt. is offering a discount of 4% in this current ETFs. The benchmark index is Nifty CPSE. The Fund Offer is managed by Reliance Nippon AMC.

What is ETFs?

1. Can be sell and buy any time of the day.
2. They can be listed on Exchange.
3. Brokerage is low.
4. New Units are offered only through new Tranches.

Top 10 Holdings in CPSE ETF:

Index constituents	Weightage
ONGC	20.43%
NTPC	19.54%
Coal India	19.09%
Indian OIl	18.45%
REC	6.65%
Power Fin Corporation	6.07%
BEL	4.02%
Oil India	2.81%
NBCC	1.45%
NLC	0.62%

This Index though consist of 11 PSUs but more than 75% stakes is consist of ONGC, NTPC, Coal India and Indian Oil. There is no lock-in period for Retail Investors. They can sell it on the very next day of allotment.

Performance and Valuation of the CPSE ETFs since inception:

The CPSE ETFs has given a return of 7.21% since inception. The fund is available at P/E of 8.43 as compared to 26.32 on nifty. So we can say the fund is available at an attractive valuation. The fund has an attractive dividend yield of 5.5% as well.

How to Apply?

The investors can apply through ICICI MFs website, HDFC Securities app, Zerodha App or many other portals. In the case of oversubscription, the ETFs units will be given depending upon the number of application.

Should You Invest?

The 4th Tranche opens up for retail investors on 20 March 2019 and closes on 22 March 2019. The Govt. is offering a discount of 4% in the current CPSE ETF. The Index consist of only PSU stocks and the performance of the PSU stocks in the last 5 years is not attractive neither does the future the way Govt. is eating out the reserves by a way of dividend or Buyback to meet their disinvestment target. The CPSE ETFs though we can say is available at an attractive valuation but it has more to do with the underperformance of the fund. The CPSE ETFs is a good option for short ( Listing gain) to mid term and but certainly not a long term bet the way PSUs stocks have underperfomed.