What is CPSE ETF?
CPSE ETF, as the name suggests, is an exchange-traded fund (ETF) comprising public sector enterprises (PSEs). The ETF was launched by the government in March 2014 to help divest its stake in select public sector undertakings through the ETF route. The ETF is based on the Nifty CPSE index that comprises 11 PSEs such as ONGC, NTPC, Coal India, Indian Oil Corporation, REC, Power Finance Corporation, Bharat Electronics, Oil India, NBCC (India), NLC India and SJVN. The parameters based on which companies have been made part of the index include a criteria that they have paid at least 10% dividend in the last two consecutive years.
What are the benefits of CPSE ETF?
Investors get to hold stake in the best of public sector enterprises — the so-called Maharatna, Navaratna and the Miniratna — that have a strong dividend-paying track record.
Incidentally, the dividend yield of the CPSE ETF index is around 5%, higher than the other indices.
While investors get an opportunity to diversify their portfolio through a single ETF, it also has the added advantage of an upfront discount that investors get if invested at the time of the further fund offering or fresh fund offering (FFO). Also, the fund has a very low expense ratio, which, in turn, enhances the returns.
The recent Budget has also introduced a tax benefit for investing in ETFs, just like equity-linked savings scheme (ELSS) offers.
The benefit will be part of the overall deduction of ₹1.5 lakh allowed under section 80 C of the Income Tax Act.
How has the response to FFOs been till now?
The new fund offer (NFO) of the CPSE ETF was launched in March 2014 and since then, there have been five rounds of FFOs. The popularity of the ETF can be gauged from the fact that each of the FFOs was oversubscribed, with investors across categories bidding in huge numbers.
Till the sixth FFO in July, the government had raised ₹38,500 crore through the CPSE ETF. The sixth FFO attracted bids worth ₹40,000 crore which is five times the issue size of ₹8,000 crore.
In other words, the last tranche has attracted as much subscription as the five tranches before it put together.
This also assumes significance as the government has set a record divestment target of ₹1.05 lakh crore in the current financial year. The CPSE ETF is managed by Reliance Mutual Fund.