Reliance Mutual Fund proposes 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). The Department of Investment and Public Asset Management of the Ministry of Finance has appointed ICICI Securities as the advisor for the FFO.
The FFO is open for all categories of investors including anchor investors, retail investors, retirement funds, QIBs, non-institutional investors and foreign portfolio investor (FPIs). As part of the FFO, an upfront discount of 5% is being offered to all category of investors. The FFO will be open for investors from January 17, 2017 till January 20, 2017.
The CPSE ETF was launched in March 2014 through a New Fund Offer (NFO) with an issue size of Rs 3,000 crore (US$ 447 million). The NFO received an overwhelming response across all category of investors and was oversubscribed by over Rs 1,300 crore (US$ 194 million). The ETF went live on April 4, 2014 and got listed on both NSE and BSE.
Composition of CPSE ETF (as of December 31, 2016)
|Company’s Name||Weight (%)|
|Oil & Natural Gas Corporation Limited||24.35|
|Coal India Limited||20.54|
|Indian Oil Corporation Limited||17.96|
|GAIL (India) Limited||11.17|
|Power Finance Corporation Limited||5.58|
|Rural Electrification Corporation Limited||5.21|
|Container Corporation of India Limited||5.04|
|Bharat Electronics Limited||4.33|
|Oil India Limited||3.39|
|Engineers India Limited||2.26|
CPSE ETF is a passive investment fund that was created to help the government in its disinvestment programme for divesting stake in select Central Public Sector Enterprises (CPSEs) through Exchange Traded Funds (ETF). The fund invests in the Nifty CPSE Index stocks – that includes ten 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.
According to RMF press release, the dividend yield of Nifty CPSE Index is about 4 per cent, further adding to the overall merit of investing in this ETF. In addition, CPSE ETF has an expense ratio of 6.5 bps, which is much lower than the other non-ETF funds that have an expense ratio as high as upto 200 bps.
The performance of the first CPSE ETF since inception has been excellent. When it was launched in March 2014, the government had offered an upfront discount of 5% on the issue price. After about a year, the government issued `loyalty' units in the ratio of 15:1 to eligible retail investors who remained invested since the new fund offer. This provided a further discount of 6.66% to the investors. The fund has clocked an impressive return of more 17 per cent CAGR since inception (after accounting for the loyalty units).
The underlying shares—the stocks that form the CPSE ETF—are trading at a much lower Price to Earnings (PE) ratio and have higher dividend yields, which makes the offer a compelling one. More importantly, the ETF offers an opportunity to invest in a diversified basket of public sector enterprises that comprise of Navratnas, Maharatnas and PSEs that are sector leaders and near monopolies in their respective sectors.
However, since the government policies will have a bearing on the entire basket of the CPSE Index and as the portfolio is heavily skewed towards energy sector, with the top four (ONGC, Coal India, Indian Oil and GAIL) having 74 per cent weightage in the index, any unfavourable movement in the prices of crude oil, natural gas and coal will negatively impact the returns.
Considering all the above factors, the CPSE ETF would be suitable for investors with a long term horizon. Open Account & Invest