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 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.
How do I purchase the 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.
How can I go about purchasing an ETF directly?
Because you can’t just go to the store and buy a basket of ETFs, you’ll need to open a brokerage account first. However, before determining where to open your account, think about your objectives. Certain types of accounts are better suited to specific objectives.
- Taxable: These are “normal” accounts that do not offer any tax benefits. This makes them excellent for achieving goals before reaching the federal retirement age of 59 1/2. When you sell your investments, there are no restrictions or penalties, but you must be cautious of taxes. You’ll owe them whenever you make a profit on an investment or receive dividend payments.
- Traditional IRAs and Roth IRAs are tax-advantaged retirement accounts that allow your investments to grow tax-deferredor even tax-free in the case of Roth IRAs. As a result, they’re effective tools for saving for retirement. The IRS, however, imposes particular contribution limits and withdrawal criteria for IRAs as a result of these tax benefits. You can’t contribute more than $6,000 every year ($7,000 if you’re 50 or older), and you can’t access your IRA assets until you’re 59 1/2 without incurring a 10% penaltyplus taxes on any money that hasn’t been taxed previously.
- 529: A 529 account is a wonderful place to start if you want to use ETFs to save for college: Money invested in a 529 plan grows tax-free and isn’t taxed when it’s withdrawn if it’s utilized for approved school costs. 529 plans can now be utilized for pre-college expenses such as private school tuition and trade school fees. While funds maintained in 529 accounts cannot be withdrawn for non-education expenses without incurring a penalty, they can be transferred to another relative without penalty.
- Custodial: If you want a more limited means to save on behalf of a child, custodial brokerage accounts are a good option. You can invest and manage money on behalf of a child beneficiary using these investment accounts. Custodial accounts have no tax advantages, except that up to $2,000 of investment income is taxed at the child’s reduced rate, and money can be spent much more broadly than 529s. A 529 plan’s funds can be used for any purpose that benefits the child. However, once the minor reaches the age of majority (typically 18 to 25 years old, depending on where you live), they will have complete control over the account.
ETFs still have costs to consider
In most circumstances, once you pay the trade charge, you can keep the stock or bond without paying any more costs.
Depending on whatever ETF you invest in and which brokerage firm you use, you may have to pay similar costs when buying or selling ETFs.
That management, no matter how insignificant, costs money. Expense ratios are paid on most ETFs to compensate these costs.
Not all investments are available
ETFs normally provide a good selection of assets, but you won’t be able to invest in everything with an ETF.
While industrialized markets may have a big range of bond ETFs, stock ETFs, and just about every other sort of ETF you can think of, emerging markets may not.
You may also want to make other types of investments that aren’t appropriate for ETFs.
If you want to acquire a specific rare vintage car or work of art, an ETF won’t be able to help you.
Harder to pick investments or investment mixes
Some people want to be very hands-on when it comes to their investing. Others will not invest in certain firms or asset classes because of their sustainability or values.
Some people, for example, will not invest in companies that offer meat or cigarettes.
It may be tough to find ETFs that invest in accordance with your very precise investing objectives. Stocks of companies you don’t wish to own may be included in ETFs.
You can find up owning certain investments in many ETFs due to their broad reach.
This may give you the impression that your asset allocation is different than it is. It may also put you at risk of being overly invested in specific companies or investments.
As a result, knowing what you’re investing in within each ETF is critical. Then you may assess your investments as a whole to ensure you’re getting the right amount of exposure.
Partial shares may not be available
You may not be able to acquire partial shares of ETFs depending on your brokerage business. While this isn’t a major issue, it can make investing more difficult.
If you wish to invest $500 per pay period with a brokerage that doesn’t accept partial ETF investments, you’ll need to figure out how many entire shares you can buy with the money you have.
Any money left over would have to be put aside until your next paycheck, when you’d have to figure out how many shares you could buy at the pricing of the next payment.
Because mutual funds allow you to purchase fractional shares, you might easily deposit $500 each week.
If partial shares are crucial to you while investing in ETFs, check to see if partial shares are offered with the brokerage firms you’re considering before opening an account.
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.
Is it possible to purchase ETFs with Zerodha?
ETFs on Zerodha: Zerodha offers every customer a fantastic opportunity to purchase and sell ETFs using our trading platform, lowering costs and improving profits. This means that once an ETF is purchased, it is transferred on a T + 2 basis to the customer’s demat account.