How to invest in CPSE ETF

The government is now ready to launch a FFO or “Further Fund Offer” exchange-traded fund (ETF) based on the central public sector enterprises (CPSE) index. This is going to be the sale of the second tranche of central public sector enterprise (CPSE) exchange traded fund (ETF) by raising an offer to deploy Rs.6, 000 crores (base size is Rs. 4500 crore and Rs. 1500 crore  for green shoe option) on 17 January, 2017 which is managed by Reliance Mutual Fund.  Anchor investors reserve is 30% and rest is offered to other categories. The offer opens for Anchor Investors for only a day on 17^th January 2017 while for other categories including retails it’s open on 18^th January 2017 and end on 20^th January 2017.

CPSE ETF is  Central Public Sector Enterprise (CPSE) Exchange Traded Fund (ETF) which functions in mutual fund scheme, comprises the scrip of 10 PSUs — ONGC, Coal India, IOC, GAIL (India), Oil India, PFC, Bharat Electronics, REC, Engineers India and Container Corporation of India.

CPSE ETF launched its first novel mutual fund scheme on March 2014 which was introduced by Golaman Sachs for bundle of 10 Maharatna and Navratna PSUs. That initial new fund offer was for rs.3000 and that time it was a great success and has given tremendous returns to investors with above 14% CAGR including the bonus. It was oversubscribed to Rs.4363 crore and the extra amount of Rs.1363 crore was refunded back to the investors.

CPSE ETF was originally managed by Goldman Sachs MF, which was acquired by Reliance MF in October 2015. In September 2015, the Finance Ministry had given its nod for the transfer of management of CPSE ETF to Reliance Mutual Fund.

How to invest in this ETF

In CPSE ETF, individual investors can invest minimum Rs.5,000 and maximum Rs. 10 Lakh. On the other hand, non-institutional investors and qualified institutional buyers can invest a minimum amount of Rs10 lakh. To apply as retail investor, you would need to be a KYC complaint. The retail investor can apply to this FFO by visiting the Reliance MF website at

https://www.reliancemutual.com/campaigns/CPSEETF/index.html

The fund offer is open for all categories of investors, like anchor, retail, retirement funds, QIBs, non-institutional investors and foreign portfolio investors (FPIs). An upfront discount of 5 % is being offered to all categories of investors. CPSE ETF has an expense ratio of 6.5 bps, which if you compare with other mutual funds including the direct mutual fund is very low. The normal MF generally charges an expense ratio of anywhere from 150 bps to 300 bps. (100 bps is 1%)

Conclusion

As the offer marked a good presence in the past offer then same response is expected this time too. It has shown a good record as well as most reputable and sector leader PSUs in it. This is a part of Indian Government disinvestment program which was earlier announced by Department of Investment and Public Asset Management (DIPAM), Ministry of Finance, using the ETF route. Issuers are confident that it will help investors to have benefit from diversified basket’s exposure. If you are comfortable being partner to Government of India managed firms, this could be a good option.

Allotment status for CPSE-ETF can be found here.