CPSE ETF FFO review

Published on Friday, January 13, 2017 by Dilip Davda | Modified on Thursday, May 2, 2019

It was March 2014, when the first novel mutual fund scheme called CPSE-ETF (Central Public Sector Enterprise – Exchange Traded Fund) was introduced by Golaman Sachs for bundle of 10 Maharatna and Navratna PSUs. This initial NFO (New Fund Offer) was for Rs. 3000 crore and was oversubscribed to the tune of Rs. 4363 crore and the excess amount of Rs. 1363 crore was refunded to investors. This maiden offer has given good returns with a CAGR of above 14 per cent since inception.

Reliance Mutual Fund CPSE ETF gets an overwhelming response as the issue gets oversubscribed by wide margin.

As the Goldman Sachs AMC was taken over by Reliance Nippon Life Asset Management Company, the second such offer as CPSE ETF FFO (Further Fund Offer) is coming to market from Reliance Mutual Fund. This offer is set to mobilize Rs. 6000 crore (base size is Rs. 4500 crore and green shoe option for Rs. 1500 crore). Out of the total offer, 30 per cent is reserved for Anchor Investors, for whom the offer is open for a day i.e. on 17.01.17 and for other categories, the offer opens on 18.01.17 and will close on 20.01.17. Out of the residual portion, 70 per cent is kept for retail investors (i.e. application up to Rs. 2 lakh) on firm allotment basis and the second preference would be given to EPFO and PFs and the rest will be for HNIs and QIBs, as informed by the management.

The composition of CPSE ETF as on 31.12.16 was as ONGC (24.35%), Coal India (20.54%), IOC (17.96%), GAIL (11.17%), PFC (5.58%), REC (5.21%), Container Corp (5.04%), BEL (4.33%), Oil India (3.39%) and Engineers India (2.26%). While NFO had a loyalty bonus linked to it, this time, FFO has upfront discount of 5 per cent across the category and firm allotment for retail investors. CPSE ETF has an expense ratio of 6.5 bps, which is much lower than the other non-ETF that has an expense as high as up to 200 bps.

As this novel instrument garnered good response for maiden offer, it is expected that this time too it will have better acceptance despite all odds as it has a proven track record and pack of highly liquid and most prestigious, monopolistic and sector leader PSUs in it. This FFO is part of the Government of India's overall disinvestment program, announced earlier by the Department of Investment and Public Asset Management (DIPAM), Ministry of Finance, using the ETF route. The further fund offer in the CPSE ETF is part of the government's larger disinvestment programme that was announced earlier by the Ministry of Finance. Issuer feel confident that the timing of the issue will help investors benefit from their exposure in a diversified basket like CPSE ETF that includes a list of distinguished PSUs that have performed exceedingly well in their respective sectors.

Important Notes: As this is a Mutual Fund scheme, it attracts KYC norms. As per market experts, Demat KYC is valid while Bank KYC will not be accepted. Application it so be given with cheques (i.e. no ASBA). No third party cheques will be entertained. PAN Card copy as well as demat client master to be attached along with application is must. If application is made in the name of minors, copy of birth certificate is mandatory.

Conclusion: Considering track record of the first CPSE ETF, this FFO is considered as a safe investment option for medium to long term.