Reliance MF CPSE ETF Further Fund Offer
CPSE ETF or
Central Public Sector Enterprises Exchange Traded Fund – This ETF got launched in March 2014
by Goldman Sachs Asset Management Company and listed in April 2014 on the stock
exchanges. While the retail investors got its units allotted at Rs. 17.45, it
quickly touched a high of Rs. 29.82 in less than 2 months in May 2014 when
there was a euphoria after Mr. Modi took charge to serve this big nation as the
PM. It is currently trading at Rs. 27.70 a unit and likely to touch its new
highs very soon.
 |
| CPSE ETF 2017 |
CPSE
ETF was launched to facilitate Government of India's initiative of
dis-investing its stake in selected Central Public Sector Enterprises through
Exchange Traded Fund CPSE ETF route. The ETF is based on Nifty CPSE index which
includes 10 listed Central Public Sector Enterprises.
CPSE
ETF is an Open Ended Index Scheme which is listed on the Exchanges in the form of
an Exchange Traded Fund (ETF) tracking Nifty CPSE Index.
The CPSE Exchange Traded Fund consists
of shares of 10 public sector units
1. Oil & Natural Gas
Corporation Limited Oil - 24.6%
2.
Coal India Limited Minerals/Mining- 19.6%
3.
Indian Oil Corporation Limited Petroleum Products - 18.4%
4.
GAIL (India) Limited Gas - 11.7%
5.
Rural Electrification Corporation Limited Finance - 5.8%
6.
Power Finance Corporation Limited Finance - 5.5%
7.
Container Corporation of India Limited Transportation - 5.0%
8.
Bharat Electronics Limited Capital Goods - 4.1%
9.
Oil India Limited - 2.9%
10. Engineers India
Limited Construction Project - 2.0%
CPSE ETF - Further Fund Offer 2, managed
by Reliance Mutual Fund, After the anchor book gets over on March 14. CPSE ETF will open for three days for retail investors from
March 15. This is the third tranche on offer through which the government aims
to garner Rs 2,500 crore. Prior to this, the government raised Rs 3,000 crore
in March 2014 and Rs 6,000 crore in January.
Top Reasons to invest in CPSE ETF
1.
Play
on India growth story through investment in the large CPSE stocks.
2.
Nifty
CPSE index: P/E ratio and dividend yields better compared to broader market
index
3.
Flexibility
of trading on real time basis
4.
Lower
expense ratios and transaction costs
Attractive Valuation:
Attractive Valuation and Superior Dividend Yield – Compared to
Other Broader Indices
Index Name
|
P/E Ratio
|
P/B Ratio
|
Dividend Yield (%)
|
Nifty CPSE
|
11.72
|
2.17
|
3.74
|
Nifty 50
|
23.13
|
3.37
|
1.25
|
Nifty Next 50
|
25.02
|
3.75
|
1.49
|
Nifty 100
|
23.43
|
3.43
|
1.29
|
Nifty 500
|
26.57
|
3.11
|
1.20
|
Source:
NSE. Data as of 28th February
2017. Note :The stock composition of all the above indices are different
Features of CPSE ETF Further Fund Offer (FFO)
High
Dividend Yield & Reasonable Valuations – All these
listed CPSEs mentioned in the table above are profitable and pay relatively
higher dividends on a regular basis. High dividend yield stocks have
historically carried lower volatility in returns. So, you can expect a
relatively stable performance from these stocks. Moreover, with years of
underperformance, I think these CPSEs are set for a rerating going forward.
Reference
Market Price/NAV – As mentioned above, CPSE ETF is
currently trading at Rs. 27.70 on the stock exchanges. This is also its
reference market price or NAV. As the investors get allotment and FFO units get
listed on the stock exchanges, market price of each unit of this ETF will be
linked to the Nifty CPSE Index and its returns would be quite close to the
returns generated by the CPSE Index.
Investment
Objective – The scheme intends to generate returns that
closely correspond to the total returns generated by the Nifty CPSE Index, by
investing in the securities which are constituents of the Nifty CPSE Index in
the same proportion as in the index. However, the performance of the scheme may
differ from that of the Nifty CPSE Index due to tracking error, scheme expenses
and the initial discount of 3.5%.
No
Loyalty Units/Bonus in FFO 2 – Like its previous
tranche, no loyalty/bonus units will be issued in this issue as well. With a
reduced discount of 3.5% this time as against 5% in the previous issue, nobody
could have expected of any such loyalty units.
Maximum
Amount to be Raised – This ETF would target to raise
Rs. 2,500 crore during this 4-day offer period. However, in case of
oversubscription in the non-anchor investors category, partial allotment will
be made to the investors.
Minimum/Maximum
Investment Size – Individual investors can invest in
the scheme with a minimum investment amount of Rs. 5,000 and there is no upper
limit on the investment amount. However, retail investors investing upto Rs. 2
lakhs will be given preference in allotment in case there is an oversubscription.
Allotment
& Listing – As per the offer document, units of
this ETF will get allotted within 15 days from the closing date of the issue
and listing on the NSE and BSE will happen within 5 days from the date of
allotment. However, I expect the allotment and listing to happen a lot sooner
than these indicative times.
Demat
Account Mandatory – Investors need to have a demat
account to apply for CPSE ETF. Applications without relevant demat account
details are liable to get rejected.
Tax
Saving u/s. 80CCG – Budget 2017 has proposed to end the
benefits of Rajiv Gandhi Equity Savings Scheme (or RGESS) and tax exemption
u/s. 80CCG from FY 2017-18. However, as this exemption is still available for
the current financial year, this could be one of the last options we have to
avail this tax exemption. CPSE ETF FFO 2 is in compliance with the provisions
of Rajiv Gandhi Equity Savings Scheme and thus qualifies for a tax exemption of
up to Rs. 25,000 under section 80CCG.
You need to fulfill two most important conditions to
avail this tax exemption – one, your gross total income should not exceed Rs.
12 lakh in the current financial year and two, you must be a first time
investor in equities. As maintained earlier as well, it is quite difficult to
satisfy both these conditions simultaneously. Hence, only a few people would be
able to qualify for it.
Lock-In
Period with Tax Exemption – Investors, who seek tax
exemption u/s. 80CCG, will be subject to a lock-in period of 3 years – 1 year
of fixed lock-in and 2 years of flexible lock-in. The fixed lock-in period will
start from the date of your investment in the current financial year and will
end on March 31st next year i.e. 2018.
The flexible lock-in period will be of two years,
beginning immediately after the end of the fixed lock-in period i.e. beginning
April 1, 2018 till March 31, 2020.
No
Tax Benefit Availed – No Lock-In Period – Investors who do
not avail any tax benefit out of this ETF, would not be subject to any lock-in
period. They can sell their units whenever they want.
Entry
& Exit Load – This scheme is not subject to any
entry load or any exit load.
Categories of Investors & Allocation Ratio
Anchor Investors – Maximum 30% of Rs. 2,500 Crore
i.e. Rs. 750 Crore will be allocated to the anchor investors.
Retail Individual Investors – After the anchor book
gets over on March 14, retail individual investors are allowed to take up all
of the remaining portion of this FFO i.e. Rs. 1,750 crore.
Qualified Institutional Buyers (QIBs) &
Non-Institutional Investors (NIIs) – QIBs and NIIs will have nothing
reserved for them in this FFO. They will be allotted units only if the
subscription numbers of the retail investors and/or anchor investors fall short
of their reserved quotas.
"The outlook for the commodity sector has improved. The
fund has a low expense ratio of 6 paise, 3.5% discount, 3.74% dividend yield
and PE ratio of 11.72, all of which are attractive in the current
environment," We recommended investors to set aside 5-10% of their
equity portfolio in such thematic funds.