Reliance Nippon Life Mutual Fund is to launch Central Public Sector Enterprise (CPSE) ETF through which the government plans to divest its stake in 10 PSUs.
The further fund offer (FFO) opens for subscription on January 17 and closes on January 20.
This FFO is part of the Government of India’s overall disinvestment program, announced earlier by the Department of Investment and Public Asset Management (DIPAM), Ministry of Finance, using the ETF route.
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 Government of India holds majority stakes in these companies.
The government is planning to raise Rs. 6,000 crore from this ETF. In fact, the fund house has proposed to raise upto Rs. 4,500 crore (US$ 671 million) in this FFO with an option to retain oversubscription upto Rs. 1,500 crore (US$ 235.5 million).
Investors will get a discount of 5% on the market price of the stock.
The ETF, which also qualifies as a RGESS, comes with only growth option. It will invest a minimum of 95% of its assets in securities comprising CPSE Index and a maximum of 5% in debt securities.
In a press release, Manish Singh, Joint Secretary, DIPAM, Ministry of Finance has said, “We feel confident that the timing of the issue will help investors benefit from their exposure in a diversified basket like CPSE ETF that includes a list of distinguished PSUs that have performed exceedingly well in their respective sectors. We are confident of an overwhelming response to this FFO.”
“We are delighted to announce the CPSE ETF FFO. It offers a compelling opportunity for investors, especially retail and retirement funds, to invest in the India growth story at an attractive valuation, lowest expense and embedded discounts”, said Sundeep Sikka, ED and CEO, Reliance Nippon Life Mutual Fund.
Experts say that investors should consider deploying some portion in CPSE ETFs. Vinod Jain of Jain Investments feels that 5% discount limits the downside risk for investors. “Some of these CPSE companies are good and on top of that the government is offering 5% discount. Investors should consider allocating only up to 5% of their equity investments in such instruments as active funds offer better returns,” he added.
Manoj Nagpal of Outlook Asia Capital recently told Cafemutual that investors should first decide whether they wish to invest in the ETF based on their risk profile. According to him, investors who are willing to take risk can allocate 5% of their investments towards this fund. However, he cautions that government policies will drive the performance of this ETF. Further, he says that the ETF can witness higher bouts of volatility due to the thematic nature of the index. “It can be a cherry on the cake but can’t be the core part of the portfolio. The index will move in cycles. For instance, the CPSE ETF didn’t deliver for one year after listing when the market was going up. So investors need to look at the funds they are holding currently and decide whether an allocation is required,” says Nagpal.
However, being a thematic ETF it comes with its own set of risks. For instance, investors have to bear the concentration risk as the ETF comprises only 10 stocks. Of these 10 stocks, ONGC has the maximum weightage (24.5%) in the NIFTY CPSE Index, followed by Coal India (20.63%) which is another energy company. “Around 70% of the index comprises of energy companies, which make the index a risky bet for retail customers,” cautions ICRA.
The fund house also plans to reach out to retirement funds like EPFO offering them deploying a portion of their retirement corpus in CPSE ETF. “We would like to reach out to retirement funds that can now invest in ETFs as per the revised norms, to consider this as an opportunity to secure their funds and benefit from the growth of these PSUs - some of which are Navratnas, Maharatnas and are either sector leaders or near monopolies in their respective sectors”, said Sundeep Sikka.
Minimum subscription: Rs. 5000 for retail investors, Rs.200,001 for QIB and Rs. 10 crore for anchor investors.
Total expense ratio: 0.65%
Benchmark: CPSE Index
Fund Manager: Payal Kaipunjal
Reliance Nippon Life Mutual Fund is to launch Central Public Sector Enterprise (CPSE) ETF through which the government plans to divest its stake in 10 PSUs.
The further fund offer (FFO) opens for subscription on January 17 and closes on January 20.
This FFO is part of the Government of India’s overall disinvestment program, announced earlier by the Department of Investment and Public Asset Management (DIPAM), Ministry of Finance, using the ETF route.
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 Government of India holds majority stakes in these companies.
The government is planning to raise Rs. 6,000 crore from this ETF. In fact, the fund house has proposed to raise upto Rs. 4,500 crore (US$ 671 million) in this FFO with an option to retain oversubscription upto Rs. 1,500 crore (US$ 235.5 million).
Investors will get a discount of 5% on the market price of the stock.
The ETF, which also qualifies as a RGESS, comes with only growth option. It will invest a minimum of 95% of its assets in securities comprising CPSE Index and a maximum of 5% in debt securities.
In a press release, Manish Singh, Joint Secretary, DIPAM, Ministry of Finance has said, “We feel confident that the timing of the issue will help investors benefit from their exposure in a diversified basket like CPSE ETF that includes a list of distinguished PSUs that have performed exceedingly well in their respective sectors. We are confident of an overwhelming response to this FFO.”
“We are delighted to announce the CPSE ETF FFO. It offers a compelling opportunity for investors, especially retail and retirement funds, to invest in the India growth story at an attractive valuation, lowest expense and embedded discounts”, said Sundeep Sikka, ED and CEO, Reliance Nippon Life Mutual Fund.
Experts say that investors should consider deploying some portion in CPSE ETFs. Vinod Jain of Jain Investments feels that 5% discount limits the downside risk for investors. “Some of these CPSE companies are good and on top of that the government is offering 5% discount. Investors should consider allocating only up to 5% of their equity investments in such instruments as active funds offer better returns,” he added.
Manoj Nagpal of Outlook Asia Capital recently told Cafemutual that investors should first decide whether they wish to invest in the ETF based on their risk profile. According to him, investors who are willing to take risk can allocate 5% of their investments towards this fund. However, he cautions that government policies will drive the performance of this ETF. Further, he says that the ETF can witness higher bouts of volatility due to the thematic nature of the index. “It can be a cherry on the cake but can’t be the core part of the portfolio. The index will move in cycles. For instance, the CPSE ETF didn’t deliver for one year after listing when the market was going up. So investors need to look at the funds they are holding currently and decide whether an allocation is required,” says Nagpal.
However, being a thematic ETF it comes with its own set of risks. For instance, investors have to bear the concentration risk as the ETF comprises only 10 stocks. Of these 10 stocks, ONGC has the maximum weightage (24.5%) in the NIFTY CPSE Index, followed by Coal India (20.63%) which is another energy company. “Around 70% of the index comprises of energy companies, which make the index a risky bet for retail customers,” cautions ICRA.
The fund house also plans to reach out to retirement funds like EPFO offering them deploying a portion of their retirement corpus in CPSE ETF. “We would like to reach out to retirement funds that can now invest in ETFs as per the revised norms, to consider this as an opportunity to secure their funds and benefit from the growth of these PSUs - some of which are Navratnas, Maharatnas and are either sector leaders or near monopolies in their respective sectors”, said Sundeep Sikka.
Minimum subscription: Rs. 5000 for retail investors, Rs.200,001 for QIB and Rs. 10 crore for anchor investors.
Total expense ratio: 0.65%
Benchmark: CPSE Index
Fund Manager: Payal Kaipunjal
