Saturday, July 20News That Matters

CPSE ETF Jan 2017 Details & Review – Should you invest?


You may have been excited to invest by looking at Reliance Mutual Fund’s new ad – Invest in 10 Maharatnas & Navratnas at 5 % discount!

This advertisement is for further fund offer (FFO) of CPSE (Central Public Sector Enterprises) ETF (exchange traded fund).

  • Issue Open : Jan 18 23017
  • Issue closes: Jan 20 2017
  • Discount: As part of the FFO, an upfront discount of 5% is being offered to all category of investors.

What is CPSE ETF?

CPSE ETF is an exchange traded fund based on central public sector enterprises (CPSE) index. It is managed by Reliance Mutual Fund and this will be the second CPSE ETF (the first CPSE ETF was launched in March 2014).

The fund aims to provide investors the opportunity to invest in a diversified basket of public sector companies and benefit from the growth potential over the long term.

The FFO is part of the Government of India’s (GOI) overall disinvestment program, announced earlier by the Department of Investment and Public Asset Management (DIPAM), Ministry of Finance, using the ETF route.

Companies in CPSE Index

CPSE Index comprise shares of the 10 biggest PSUs: ONGC, GAIL, Coal India, IndianOil, Oil India, Power Finance Corporation, Rural Electrification Corporation, Container Corporation, Engineers India and Bharat Electronics.

Performance of last CPSE ETF

  • When it was launched, the government had offered an upfront discount of 5% on the issue price to sweeten the deal for investors.
  • A year later, the government issued `loyalty’ units in the ratio of 15:1 to eligible retail investors who remained invested since the new fund offer, which amounted to an additional discount of 6.66%

Since its inception, the fund has clocked 14.5% annualised return. After adjusting for loyalty units, retail investors have made a gain of 17.2%.  But this is not impressive as compared to other mutual funds – see section below on comparison

Comparison of CPSE ETF returns with some other equity funds

  09-Apr-14 19-Jan-16 Absolute
CPSE ETF  19.77 26.81 36% 11.60% 47%
SBI Blue chip 19.327 30.924 60% 0 60%
DSP Blackrock Microcap 20.44 52.32 156% 0 156%
SBI Magnum Multicap 21.03 37.17 77% 0 77%
Birls SL Tax relief 96 (ELSS) 13.74 23.38 70% 0 70%

As you can see above, other equity funds have given better retuns that CPSE ETF.

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– Less diversification: Even though it is Index fund, but top 4 stocks constitutes 74% of the portfolio is restricted to 3 stocks – ONGC, Coal India and IndianOil & GAIL
– The first ETF launched in April 2014, The NAV reached 27.5 in June 2014 itself (within 3 months) – since then it is lower than 27.5 which means the no returns in last 2.5 years.

– have made a return of 17.5 % per annum compounded since inception
– very low expense ratio at 0.065 %
– The dividend yield of the portfolio at about 4% is attractive

Tax Benefit:

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.

Anchor Investors: Anchor investors quota is oversubscribed 4 times and they have put in Rs 6,000 crore against Rs 1,500 crore reserved for them.
The issue received participation from banks, insurance companies, FIIs and MFs, both domestic and foreign. Nomura, Morgan Stanley, SBI, LIC, Axis Bank and Birla Sun Life MF were some of anchor investors.

Should you invest
If you want to invest in public sector companies, then you can consider this fund. Treat this as a speciality / sector fund, and you may consider to allocate 10% of the investible amount to this fund. But remember the returns are not great as compared to some other Large / midcap equity funds.

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