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Pradeep Gaur/Mint
Pradeep Gaur/Mint

Product crack: Central Public Sector Enterprises ETF

Avoid CPSE ETF if you haven't yet invested in any other fund

Goldman Sachs Asset Management India Ltd has launched a new exchange-traded fund (ETF), called Central Public Sector Enterprises Exchange Traded Fund (CPSE ETF). This is a passively-managed scheme that will invest its entire corpus in the National Stock Exchange’s (NSE) CPSE index and in the same proportion as they lie in the index. This index consists of 10 state-owned companies such as Oil and Natural Gas Corp. Ltd, GAIL (India) Ltd, Coal India Ltd, and so on, where the Government of India intends to divest some of its stake. During the new fund offer (NFO) period, the CPSE ETF will collect money from investors and give it to the government, which, in turn, will transfer a basket of shares to the mutual fund scheme, at a discount of 5%. Then the fund house would create units—each unit will represent the basket of shares of the 10 underlying companies. The fund house has already appointed market makers who would make these units available on the stock market from where investors can buy. Retail investors can invest up to 2 lakh in this scheme.

What works

Market experts claim that this is a good time to invest in state-owned companies. The prospects of a new government that is expected to take the reforms ahead, and low valuations are some of the biggest reasons that many of these state-owned companies are finding a renewed interest on the stock markets. Besides, some of these companies have dominant market shares that make them attractive, provided the administration and management of such companies are in order. These companies’ present, low valuations also make their share prices attractive.

The government through, CPSE ETF will offer a 5% discount to all its investors during the NFO. Additionally, if you buy units during the NFO and hold on to them for a year, you will get an additional one unit for every 15 such units held. The loyalty units are only for retail investors. ETFs have a low expense ratio; CPSE ETF’s expense ratio is 49 basis points, or 0.49% per annum.

What doesn’t

CPSE ETF is a thematic MF scheme as it will invest only in state-owned companies. Although it is a passively-managed fund and not as risky as it would have been had it been actively managed, this is still a thematic fund. Typically, bad news on the government front, especially lack of policy-making or news of corruption, spells bad news for state-owned companies and stock prices of the entire basket of stocks could suffer.

Mint money take

Avoid CPSE ETF if you haven’t yet invested in any other fund. This should not be your first MF scheme. It comes with its own set of risks as these are government-owned companies; their management and efficiency depends on a lot of factors. If, however, you have an existing MF portfolio, you can invest in CPSE ETF to add flavour to your portfolio. It will list on stock exchanges on 4 April to facilitate on-going purchase and sales.

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