CPSE ETF Further Fund offer 5 or the 6th tranche plans to raise about Rs. 12000 crore including the green shoe option. Through the earlier five tranches of the CPSE ETF, the government raised a total of Rs 38,500 crore with the last tranche in March 2019 raised Rs 10,000 crore.
As part of its disinvestment program, GOI on May 2, 2013 approved the setting up of a central public sector enterprise exchange traded fund (“ETF”) comprising equity shares of central public sector enterprises (“CPSE”), which was launched as a CPSE ETF mutual fund scheme CPSE Exchange traded fund has concentrated portfolio spread across a number of PSUS in Oil, Energy, financials, infrastructure & engineering. Reliance Nippon Life AMC is the manager to this 6th tranche of the CPSE ETF. All Investors are likely to be offered a 3 % discount.
ETF, or exchange-traded fund, is a marketable security that tracks a basket of assets such as stocks. In contrast to mutual funds, it is listed on the stock exchange and trades like a stock. CPSE ETF which stands for Central Public Sector Enterprises-Exchange Traded Fund is a type of mutual fund scheme and has been used by the government to divest its stake in CPSEs with good success rate. CPSE ETF started as a basket of 10 public sector undertakings where the government had sold shares in small quantities way back in May, 2014. A 4% upfront discount had been offered to lure investors to invest in this fund at that point of time. This was followed by three CPSE ETF Further Fund offers (FFO) in Jan 2017 and March 2017 and Nov 2018, Mar 2019 respectively. These FFO gave discount of 5%,3.5%, 4.5% and 4% to retail investors respectively.
So far, the government has raised a total of Rs 28,500 crore from rounds through CPSE ETF, The fund invests in the Nifty CPSE Index stocks which at present include eleven PSUs companies in the same proportion and weight age as of the index. .
How to apply
Apply Physical form or through your brokerage
Key points & Updates:
- Grey Market Kostak on Rs. 2 Lac application is Rs. 3000-3200 as on 17-07-19
- in CPSE ETF FFO 5 (Further Fund offer), investors are being offered a 3% discount but the effective discount can be lower as shares of Indian Oil Corporation Ltd. will have to bought from the market as the government intends to retain its 51 percent stake in the company.
- Open for subscription to anchor investors on 18th July, 2019.
- Open for retail and other investors on 19th July 2019
- Investment in CPSE ETF scheme qualifies for deduction under Rajiv Gandhi Equity Saving Scheme (RGESS) and thus of 50% of the investment amount can be deducted from the taxable income under the Section 80 CCG of the Income Tax Act.
- The Fund is being managed by Reliance Nippon Life Asset Management Limited (RNAM) which had been managing the fund by virtue of their taking over Goldman Sachs who were initially manages to the fund when it was launched way back in 2014.
- The Scheme invests at the minimum 95% of its total assets in Nifty CPSE Index stocks and can at the maximum invest 5% in Money Market Instruments like include T-Bills, CP (commercial paper) etc.
- CPSE ETF is also now eligible for 80C tax benefits like ELSS.
CPSE ETF : Holding
The CPSE ETF tracks shares of 10 Central Public Sector Enterprises (CPSEs) which are ONGC, NTPC, Coal India, IOC, Power Finance Corp, Bharat Electronics, Oil India, NBCC India, NLC India and SJVN. Rural Electrification Corp which was earlier part of CPSE ETF is now out. The Holding of CPSE ETF is depicted below .
The portfolio of this ETF fund had earlier gone a change whereby GAIL, Container Corporation of India and Engineers India have been replaced with NTPC, NLC, NBCC and SJVN. Further REC is now not part of CPSE ETF.
CPSE ETF FFO 5:Anchor Investors
CPSE ETF FFO 5 garners 20,000 crore from anchor investors against Rs 2,400 crore portion (8 times). Complete list of Anchor Investors
- The CPSE ETF FFO 5 presents an opportunity to investors to take exposure to some of the PSU companies across different sectors with relatively less stock specific risk as the risk gets diversified among the basket of stocks from different sectors.
- CPSE ETF FFO 5 is reported to be commanding a Kostak premium of Rs. 3000-3100 in the grey market on Rs. 2 Lac Retail application (17-03-19)
- The Government had offered a 3% discount to all categories of investors in CPSE ETF FFO 5
- CPSE ETF now qualifies for 80C deduction of ₹1.5 lakh. This puts it , at par with ELSS on the Tax front.
- Most of the CPSE ETF constituent companies are energy or infrastructure companies which have monopolies in their rspective sector. However, government interference in CPSEs remains a concern and weighs on their valuations.
- The CPSE ETF charges very low annual fee of the order of 0.09 % of total assets. This is significantly lower than many other funds with PSU exposures.
- Despite the arbitrage lure, the price risk associated with market volatility . In the medium to long run It is unlikely that CPSE ETFs will outperform Broad Indices, because of the nature of public sector organisations and their approach to the business.
- CPSE ETF FFO 5 may be suitable for a moderate returns only for very short term/ arbitrage investors considering upfront discount of 3% (effective could be 2.5%)and comes with an element of risk as markets can swing by this percentage easily in the intervening period.
- Return from CPSE ETF has lagged the market returns from broader indices.
- Till now CPSE ETF & Bharat 22 ETF have always proved lucky to investors not only due to discount but other accompanying positive developments at that point of time. Let us see if this record is maintained this time too though the margin of safety appears to be less this time with effective 2.5-2.6% discount. I intend to invest some amount in CPSE ETF FOO 5 purely for a possible arbitrage though the gains that may accrue may be meager and there are even chances of no profit or even loss depending on market movement.