The government’s bigger disinvestment initiative, introduced by the Ministry of Finance in 2017, includes the Central Public Sector Enterprises Exchange Traded Fund (CPSE ETF) FFO. The CPSE ETF is a no-lock-in passive investment fund developed to assist the Government of India in its desire to disinvest some of its share in selected CPSEs using the innovative ETF mechanism. The ETF invests in 11 listed Central Public Sector Enterprises and is based on the Nifty CPSE index.
All types of investors, including anchor investors, retail investors, retirement funds, institutional investors, non-institutional investors, and overseas portfolio investors, are welcome to participate in the FFO (FPIs).
Is it a good idea to put money into the CPSE ETF?
Despite the trend toward privatization, there are a number of compelling reasons to include CPSE ETFs in your investing portfolio.
ETFs offer an ideal way to invest directly in the Central Government-owned Navratna and Maharatna PSUs. The government’s ongoing efforts to improve efficiency provide more guarantee of a solid ‘Return-on-Investment.’
As of February 28, 2019, the NIFTY CPSE index had a dividend yield of almost 4%, while the NIFTY 50 index had a dividend yield of 1.50 percent. When the overall expense ratio is taken into account, it is 0.0095 percent. As a result, a conservative investor should consider the CPSE ETF. CPSE Stocks have been market leaders despite occasional swings, and investing in a basket of CPSE stocks is less risky than other shares.
What is the CPSE ETF made up of?
The Central Public Sector Enterprises Exchange Traded Fund (CPSE ETF) is an open-ended exchange-traded fund that began trading in March 2014. Though an ETF is a sort of mutual fund, you may normally trade (buy/sell) the units using a trading account on a stock market. Let’s have a look at the portfolio composition of the CPSE ETF now that you know what it is.
The CPSE ETF invests in a concentrated basket of equities with a 20% weighting in the underlying index, the Nifty CPSE Index. Currently, the ETF holds stocks in 11 publicly traded businesses in the energy and oil sectors:
CPSE ETF price
The fund is available on both the NSE and the BSE. On the NSE, you can keep track of the CPSE ETF price. In addition to the CPSE ETF price, Tickertape also provides an investment checklist that outlines the factors to consider before investing in CPSE ETF units, allowing you to make an informed decision. You may also look at the important metrics of the CPSE ETF and other equities you want to track to acquire additional information.
Salient features of CPSE ETF
Understanding the Central Public Sector Enterprises Exchange Traded Fund’s attributes will also help you obtain a better understanding of the fund and make better judgments. The following are some of the characteristics of the CPSE ETF.
CPSE ETF units are issued at a discount
Each tranche of the CPSE ETF is offered at a discount, which has ranged from 3% to 5%. Typically, a big number of investors, primarily institutional investors, park their money in this ETF to take advantage of the discount and depart quickly. Retail investors who do not invest substantial quantities in the avenue would not be able to invest in the fund for the short term only to take advantage of the discount.
CPSE ETF doesn’t guarantee outperformance
Mutual funds, as you may know, are managed by professional fund managers. You can earn reasonable returns on the investment while minimizing risks thanks to their experience. However, if the fund’s manager’s judgment proves to be incorrect for any reason, you will be responsible for the fund’s loss. Fortunately, the CPSE ETF is immune to this risk because it tracks the Nifty CPSE Index passively. However, because the Nifty CPSE index, which the ETF tracks, is a custom-built index, this does not guarantee outperformance. But what difference does it make?
A fund that is benchmarked to a broad-based index, such as the Nifty or Sensex, is typically better shielded from fund manager errors. Because indexes based on wide market capitalization automatically filter out stocks that lose market capitalization (m-cap) and vice versa, without the need for manual intervention. In other words, the fund’s loss on this account is limited to some extent. The replacement of stocks does not happen automatically because the Nifty CPSE index is custom-built. As a result, the CPSE ETF may not be well-protected against the component businesses’ m-cap losses.
CPSE ETF is not well-diversified
Because it only owns 11 securities, the CPSE ETF is a highly concentrated mutual fund. Furthermore, only four member stocksONGC, NTPC Ltd, IOCL, and OILtake up approximately 77.64 percent of the fund, indicating that the ETF is underdiversified. Furthermore, the CPSE ETF is strongly exposed to the energy sector, which is very cyclical. In other words, any slowdown in economic activity will have an impact on the industry, which will reflect in the fund’s performance.
Short-term gains on CPSE ETF may be set-off by transaction costs
As previously stated, the CPSE ETF tranches are sold at a discount, which may entice investors to invest. However, when the savings from the discount are factored in with taxes, the gain may not be significant in the near term. This is why.
Gains on equities ETF units held for less than a year are subject to a 15 percent short-term capital gain tax. The gains you make on selling ETF units after holding them for more than a year are tax-free up to Rs 1 lakh, after which they are subject to a 10% long-term capital gains tax. As a result, before deciding on the investment period for the CPSE ETF, it is critical to conduct a cost-benefit analysis.
CPSE ETF may not offer aggressive growth
As previously stated, the CPSE ETF invests in stocks owned by state-owned enterprises. It is well known that public enterprises are primarily motivated by a social goal rather than producing wealth. As a result, the CPSE ETF may not provide fast growth, which may be contrary to your investing goals.
How to invest in CPSE ETF?
The units of the CPSE ETF can be traded in two ways. To begin, think of it as if you were buying a stock on a stock exchange. To put it another way, acquire CPSE ETF units on the BSE or NSE. Second, you can buy CPSE ETF directly from the mutual fund house if you want to buy more than 1 lakh units. What’s the benefit? On the units, you will receive a 3% discount.
Does CPSE ETF have a minimum investment?
Yes, there are minimum investment limits for different sorts of investors in the CPSE ETF, as follows:
Now that you know what the CPSE ETF is and other details about it, consider your investing objectives, risk profile, and expected returns before signing up for it.
Is the CPSE ETF tax-exempt?
Investment in CPSE will get tax benefits similar to those offered by the Equity Linked Savings Scheme, according to Finance Minister Nirmala Sitharaman’s recent budget presentation (ELSS).
Investments in ELSS are currently eligible for tax deductions up to 1.5 lakh under Section 80(C) of the Income Tax Act. Although, a proper plan and details on tax slabs for ETF investments are still pending.
What is the procedure for obtaining a CPSE ETF?
CPSE ETF can be purchased using a Demat trading account in the same way that other exchange traded funds can. Investing in CPSE ETF FFO has never been easier thanks to HDFC Securities’ many trading platforms.
What does CPSE ETF Upsc stand for?
CPSE Exchange Traded Fund is the name of the fund. ONGC, Coal India, IOC, GAIL (India), Oil India, PFC, Bharat Electronics, REC, Engineers India, and Container Corporation of India make up the CPSE ETF, which works like a mutual fund plan.
Is ETFS a stockholder?
ETFs are a sort of investment fund and exchange-traded vehicle, which means they are traded on stock markets. ETFs are comparable to mutual funds in many aspects, except that ETFs are bought and sold from other owners on stock exchanges throughout the day, whereas mutual funds are bought and sold from the issuer at the end of the day. An ETF is a mutual fund that invests in stocks, bonds, currencies, futures contracts, and/or commodities such as gold bars. It uses an arbitrage mechanism to keep its price close to its net asset value, however it can periodically deviate. The majority of ETFs are index funds, which means they hold the same securities in the same quantities as a stock or bond market index. The S&P 500 Index, the overall market index, the NASDAQ-100 index, the price of gold, the “growth” stocks in the Russell 1000 Index, or the index of the greatest technological companies are all replicated by the most popular ETFs in the United States. The list of equities that each ETF owns, as well as their weightings, is provided daily on the issuer’s website, with the exception of non-transparent actively managed ETFs. Although specialist ETFs can have yearly fees considerably in excess of 1% of the amount invested, the largest ETFs have annual costs as low as 0.03 percent of the amount invested. These fees are deducted from dividends received from underlying holdings or from the sale of assets and paid to the ETF issuer.
An ETF divides its ownership into shares, which are held by investors. The specifics of the structure (such as a corporation or trust) will vary by country, and even within a single country, various structures may exist. The fund’s assets are indirectly owned by the shareholders, who will normally get yearly reports. Shareholders are entitled to a portion of the fund’s profits, such as interest and dividends, as well as any residual value if the fund is liquidated.
Because of their low expenses, tax efficiency, and tradability, ETFs may be appealing as investments.
Globally, $9 trillion was invested in ETFs as of August 2021, with $6.6 trillion invested in the United States.
BlackRock iShares has a 35 percent market share in the United States, The Vanguard Group has a 28 percent market share, State Street Global Advisors has a 14 percent market share, Invesco has a 5% market share, and Charles Schwab Corporation has a 4% market share.
Even though they are funds and are traded on an exchange, closed-end funds are not considered ETFs. Debt instruments that are not exchange-traded funds are known as exchange-traded notes.
Who is the CPSE ETF’s owner?
The CPSE ETF is an exchange-traded fund that invests in the Nifty CPSE index’s 12 state-owned firms. It manages a concentrated portfolio, with a few equities accounting for up to 20% of the underlying index. The portfolio is heavily weighted in the energy and oil sectors. ETF units can be exchanged on exchanges like stocks. BHEL, Coal India, NBCC, NLC India, NTPC, Oil India, ONGC, SJVN, NHPC, NMDC, and Power Grid are among the companies in which it has invested.
On January 30, the issue will open for anchor investors and close on the same day. On January 31, it will also open and close for additional institutional and retail investors.
The fund’s units are available for purchase on the BSE and NSE. If you’re buying more than 1 lakh units, you can buy straight from the mutual fund house. The units will be offered at a discount of 3%.
Non-institutional investors and eligible institutional buyers (other than anchor investors) can invest as little as Rs 5,000, while retail investors can contribute as much as Rs 2 lakh. The anchor investor’s minimum investment is set at Rs 10 crore.
The government has already raised roughly Rs 50,000 crore through the first six tranches of the CPSE ETF: Rs 3,000 crore in March 2014, Rs 6,000 crore in January 2017, Rs 2,500 crore in March 2017, Rs 17,000 crore in November 2018, Rs 10,000 crore in March 2019, and Rs 11,500 crore in July 2019. The ETF’s revenues will assist the government in meeting its disinvestment target of Rs 1.05 lakh crore for the current fiscal year.
What is the Nippon Indian Junior Exchange Traded Fund?
Nippon India ETF Junior BeES is a Nippon India Mutual Fund House Open-ended Large Cap Equity plan. 2. On February 21, 2003, the fund was established. 1.