PSU ETF by Government of India

For those of you who don’t know what ETF (Exchange Traded Funds) is…then this is the Blogpost for you…and for those of you who already know it, then I can guarantee that this Blogpost will probably be a value-addition to your existing knowledge.☺

ETF (Exchange Traded Funds) is most certainly ‘the one and only wonder of the stock market in India’. It was launched in India for the first time on March 14, 2014. The New Fund Offer (NFO)  will be open for anchor investors (those investing above Rs. 10 crores) on March 18, 2014 and from today i.e. March 19, 2014 it would be open for non-anchor and retail investors and will close on March 21, 2014. They should invest a minimum of Rs. 5000 and in multiples of Re. 1 thereafter up to a maximum of Rs. 2 lakhs.

Goldman Sachs Asset Management (India) Pvt. Ltd. has been selected by the Government of India to run the ETF Fund which will be called as Central Public Sector Enterprises (CPSE) Exchange Traded Funds.

Exchange Traded Funds are very similar to Mutual Funds. It will be based on the Equity index of the stocks of top 10 Public Sector State-run Units namely Coal India, GAIL, ONGC, Indian Oil, Bharat Electronics, Oil India, Power Finance Corp, Rural Electrification Corp, Container Corp and Engineers India. In other words, it will track the Central Public Sector Enterprise (CPSE) index*: as said by Sanjiv Saha, CEO, Goldman Sachs Asset Management (India) Pvt. Ltd. And Alok Tandon, Joint Secretary, Department of Disinvestment, Union Ministry of Finance. They will be bought and sold on National Stock Exchange (NSE) like Mutual Funds.

 Benefits to Investors:

ü  Moreover this scheme offers tax benefits as it is in compliance with the Rajiv Gandhi Equity Savings Scheme. Therefore first time investors in equity will get tax benefits in the current year itself.

ü  There is no entry/exit load in this type of transaction.

ü  Moreover a retail investor will get one free unit for every 15 units held if they hold it for a year, provided the units are bought at the Hew Fund Offer (NFO) stage and this is known as loyalty bonus.

ü  All class of investors will get a 5% discount at the time of subscription.

Benefits of ETF for the Government:

ü  PSU ETF’s is a go-to divestment route for the Government of India to sell stakes of Public Sector Units.

ü  The Government has planned to raise a maximum of Rs. 3000 crore through New Fund Offer (NFO)

ü  Money raised can definitely be used to bring liveliness into an almost dysfunctional Indian Economy.

ü  It can help them to address the ever-lasting infrastructural problems of our economy and hopefully projects that were put to a halt due to want of funds can be rejuvenated by infusion of funds.

Now you might have been thinking that what Central Public Sector Enterprise (CPSE) index* is? Right?. I was also thinking the same and here is our answer:

CPSE is an index which is developed by including companies which fulfills the following conditions:

ü  It is owned 55% or more by the GoI

ü  It is listed on NSE

ü  It has more than Rs. 1000 crores as average free float market cap for six months period ending June 2013.

ü  It has consistent dividend payment record (at least 4% for & years immediately prior to 7 out of 9 years immediately prior to June 2013)

Currently India has only 10 blue-chip PSU which fulfills all the above criteria:

Ø  Coal India (17.75%)

Ø  GAIL (18.48%)

Ø  ONGC (26.72%)

Ø  Indian Oil (6.82%)

Ø  Bharat Electronics (2%)

Ø  Oil India (7.04%)

Ø  Power Finance Corp (6.49%)

Ø  Rural Electrification Corp (7.16%)

Ø  Container Corp (6.40%)

Ø  Engineers India (1.13%)

Hence, Goldman Sachs’ team will invest the corpus in the above companies in the given weightage and the returns generated from such ETF funds will more or less coincide with the CPSE index as explained.

According to latest data release ETF has already generated Rs. 850 crore bids from anchor investors

Observing the various nuances and benefits of this ‘one of its kind’ mutual fund investment, I think that it will be prudent to invest in the ETF at the first instance available. I am going to invest today. Are you? If you really want to invest then please hurry up because the investment window closes on March 21, 2014.

If you like this Blogpost then please share it will your near and dear ones so that they can also get a chance to invest in the most awaited Mutual Fund i.e. ETF.

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