Fourth tranche of CPSE ETF opens this week. Here’s what you should know before investing

New Delhi: The fourth tranche of Central Public Sector Enterprises (CPSE) Exchange Traded Fund (ETF) is set to open for subscriptions later this week on BSE’s Internet-based book building system (iBBS) platform, an online mechanism for investment. A circular released by the exchange said, “The subscription CPSE ETF FFO-3 will commence from Wednesday, November 28, till Friday, November 30, on BiMF (BSE iBBS Platform for Mutual Fund) module on iBBS platform of BSE.” Here are the things that an investor should know:

What’s on offer?

CPSE ETF is a passive investment fund created to help the government in its disinvestment programme of divesting stake in select CPSEs through ETF. The fund invests in the Nifty CPSE Index stocks — that includes 11 PSU companies selected on the basis of established track record, government holding, market capitalisation, dividend history, sector representation, etc. — in the same proportion and weightage as of the index. Through the upcoming tranche, the government is aiming to rake in Rs 8,000 crore, with a green-shoe option to retain either Rs 4,000 crore or Rs 6,000 crore from the fourth tranche of CPSE ETFs, investment banking sources said.

What’s in the ETF bucket?

CPSE ETF is made of 11 PSU stocks across sectors. In terms of weightages, the top five companies are NTPC (19.59 percent), Coal India (19.17 percent), Indian Oil Corporation (18.98 percent), Oil & Natural Gas Corporation (18.92 percent) and Rural Electrification Corporation (6.19 percent). The 11 stocks are across sectors — oil, power, mining, petroleum products, finance, etc. Three existing companies — GAIL, Engineers India Ltd, and the Container Corporation of India — have been removed from the index as the government holding in these companies had fallen below 55 percent.

Deja view

If one looks at data drawn from the last three years, it becomes evident that the market has taken a negative outlook with respect to PSUs for some time. Till October 31, 2018, CPSE ETF has yielded a return of 5.97 percent annualised against Nifty total returns index (TRI) of 10.22 percent annualised. Since inception, CPSE ETF return has been 8.17% annualised against Nifty TRI of 11.47% annualised.