Goldman Sachs Mutual Fund has filed an offer document with SEBI to launch central public sector enterprise (CPSE) ETF through which the government will divest its stake in 10 PSUs.
The CPSE Index constitutes of companies like ONGC, Gail India, Coal India, Rural Electrification Corporation, Indian Oil Corporation, Oil India, Power Finance Corporation, Container Corporation of India, Bharat Electronics and Engineers India.
The Finance Ministry had appointed Goldman Sachs AMC to launch and manage the GS CPSE BeES. Apart from Goldman Sachs, five fund houses had bid for launching this ETF.
The government is planning to raise Rs. 3,000 crore from this ETF. The ETF has reserved Rs. 900 crore for anchor investors and the remaining Rs. 2,100 crore is reserved for retail, QIB, and non-institutional investor category. Retail investors who invest in this ETF during the NFO period will be given loyalty units.
The ETF which also qualifies as a RGESS comes with only growth option. It will invest a minimum of 90% of its assets in securities comprising CPSE Index and a maximum of 10% in debt securities.
The CPSE Index has base date of 01-Jan-2009 and base value of 1000. The ETF will charge a total expense ratio (TER) of maximum up to 0.49%. On Rs. 3,000 crore AUM, this translates into revenue of Rs. 14 crore for the AMC. The entire NFO expense in marketing the fund will be borne by the AMC.
Goldman Sachs managed Rs. 3847 crore as on December 2013.
Distributors are divided over the investment opportunities in PSUs. “There are two views on this. One camp believes that PSU stocks offer good investment opportunity as these stocks are beaten down. The second camp believes that these companies may not be run well as there is lot of government interference in the functioning of these companies. For instance, MTNL and BSNL once commanded monopoly. Today they have turned loss making entities. We wouldn’t recommend our investors to invest in PSUs,” says Vinod Jain of Jain Investments.
MS Shabbir of Sensage Financial Services feels that most of the constituents of this ETF are good companies and worth investing. “Some of these companies are good. However, we need to see if there are any changes in the constituents of the index. If they had kept PFC, the ETF would be Shariah Compliant and this way the ETF would have received investments from NRIs,” says Shabbir.
Some believe that conservative investors who are looking for safety can invest in this ETF. “The returns from this ETF won’t be higher compared to other ETFs which comprise private sector companies. Investors looking for stability can consider this ETF. There are some advantages with PSU stocks. Only government companies are allowed to raise debt through tax-free bonds. The government can come out with regulations which can benefit these companies. Historically, these companies have generated 12%-15% returns and offer good dividends,” says Nikhil Kothari of Etica Wealth Management.
