CPSE ETF NFO Opens on 18th March 2014

Published on Friday, March 14, 2014 by Dilip Davda | Modified on Wednesday, July 22, 2015

The long waited CPSE (Central Public Sector Enterprise) ETF is now all set for soft launch next week. Goldman Sachs, who got the mandate from the Government of India for marketing of CPSE ETF, has announced the details of the NFO that is opening for subscription for Anchor Investment on 18.03.14 and for Non-Anchor investors from 19.03.14 to 21.03.14.

CPSE ETF is a unique opportunity for investors to invest in 10 Maharatnas, Navratnas and Miniratnas at a discount of 5% on the “Reference Market Price” of the underlying shares of CPSE Index, which will be offered to the CPSE ETF by the Government of India. 6.66% Loyalty Units (One Loyalty Unit will be allocated for every 15 Units held) for eligible Retail Individual Investors holding the units continuously from the Allotment Date to the Loyalty Unit Record Date, which will be one year from the NFO allotment date. The non-anchor investors NFO closes on 21st March 2014. Scheme reopens for continuous subscription and redemption on or before 11th April 2014.

Providing portfolio diversification through investment in blue-chip public sector enterprises, CPSE ETF is a play on India’s growth story through the largest companies in the core sector. The CPSE Index constituents are as follows: Oil & Natural Gas Corporation Ltd., GAIL (India) Ltd., Coal India Ltd., Rural Electrification Corporation Ltd., Oil India Ltd., Indian Oil Corporation Ltd., Power Finance Corporation Ltd., Container Corporation of India Ltd., Bharat Electronics Ltd. and Engineers India Ltd.

The CPSE Index is constructed in order to facilitate the Government of India’s initiative to disinvest some of its stake in selected CPSEs through the ETF route. As per data published by the index service provider, as of 13th March 2014, the CPSE index had a PE ratio of 10.52 and dividend yield of 3.51%.

Retail Individual Investors can invest a minimum of Rs. 5,000 and in multiples of Re. 1 thereafter up to Rs. 200,000. Non Institutional Investors/ QIBs can invest a minimum of Rs. 200,001 and in multiples of Re. 1 thereafter. Maximum Amount to be raised during the NFO will be Rs. 3,000 crore subject to maximum of 3% of the paid up share capital of each of the constituents of the CPSE Index. The entry and exit load is nil. CPSE ETF offers Tax Benefits as the Scheme is in compliance with the provisions of Rajiv Gandhi Equity Savings Scheme, 2013 (‘RGESS’).

Although it is observed that except Gold ETF, other ETF schemes have failed to attract retail investors, but this being the novel concept of a pack of leading listed PSU under ETF, it is felt that the retail investors will definitely stand to benefit with minimum of 9%+ tax free returns in first year and if loyalty bonus component is taken into consideration, then the return is above 15% which is definitely far better than tax free bonds, inflation index bonds or FDs. As this ETF consists 10 listed PSU scrip, it also spreads risk of holding in any single PSU and thus a safe bet one should not miss during NFO period. Thereafter it will be available for investment on bourses in secondary market.