Skip to main content

CPSE ETF - Should you Invest?


While the fund promises a lucrative play on the India growth story, there are certain pitfalls.


The government is set to launch a new exchange traded fund (ETF) based on the Central Public Sec tor Enterprises (CPSE) Index.

Managed by Reliance Mutual Fund, this will be the second CPSE ETF.


The fund aims to provide investors the opportunity to invest in a diversified basket of public sector companies and benefit from the growth potential over the long term. It will mirror the performance of the CPSE Index and the portfolio will comprise shares of the 10 largest PSUs--Oil & Natural Gas Corporation  (ONGC), GAIL India, Coal India, Indian Oil, Oil India, Power Finance Corporation, Rural Electrification Corporation, Container Corp, Engineers India and Bharat Electronics.


To find out if it's a good idea to invest in the fund, it is important to consider how the first CPSE ETF has shaped up. When it was launched in March 2014, the government had offered an upfront discount of 5% on the issue price to sweeten the deal for investors.A year later, the government issued `loyalty' units in the ratio of 15:1 to eligible retail investors who remained invested since the new fund offer, which amounted to an additional discount of around 6.66%. It is expected that the new CPSE ETF will also offer similar discounts and bonus, providing an attractive entry point to retail investors. In addition to this, the prevailing low valuations of the underlying shares make it a compelling offer-the PSU stocks that form the CPSE ETF are trading at much lower PE ratio and high dividend yields than the broader market. While CPSE Index trades at a PE multiple of 11.44 and dividend yield of 4.07%, the Nifty 50 index is available at 22 times and 1.35% respectively. A low expense ratio of 0.065% also ensures that costs do not eat into the gains made by the scheme over time.


The ETF claims to offer investors a play on the India growth story through a diversified basket of PSU stocks. But a closer inspection of the composition of the underlying index suggests that the portfolio is far from diversified. Three stocks -- ONGC, Coal India and Indian Oil Corporation -- together constitute around 63% of the entire portfolio. The portfolio is also skewed towards a few sectors, with energy, metals and financial services making up nearly 90% of the portfolio. This lends a higher risk element to the ETF, despite the fact that the underlying stocks are some of the biggest names in their respective sectors.


The performance of the first CPSE ETF looks impressive. Since its inception, the fund has clocked 14.5% annualised return, even as the Nifty 50 index gained 7.5% during the same period. After adjusting for loyalty units, retail investors have made a gain of 17.2%. Over the past year, the fund delivered 17.43% return, even as the Nifty 50 index clocked 2.8%. This effectively makes it the best performing large-cap fund. But this performance needs to be put in context. The fund reached its peak net asset value (NAV) within two months of being launched, supported by a combination of factors such as government oil price deregulation and tumbling crude oil prices. Investors were also of the belief that the efficiency of public sector companies would improve under the new government. The fund's returns have since mostly been driven by the trend in commodity prices, as the index is heavily skewed towards commodity-driven businesses.


Experts are of the opinion that this is more of a speciality fund, rather than a typical diversified equity fund, and should be regarded as such. Investors should treat this as a sector or thematic fund and invest accordingly. That means it should not be a part of your core allocation. You can opt for partial allocation within the 10% tactical allocation in the portfolio.


Another factor to consider is that any changes in the policies of the promoter could have a bearing on the entire basket. "Retail investors should not over-expose their portfolio to such a concentrated bet. Adding that since the fuel price hike and deregulation is mostly behind us, there aren't too many things the government can do to help the stock prices of these energy PSUs. Besides, while the lower valuations for the underlying PSU stocks provide some comfort on the downside, they are cheap for a reason. Most private sector businesses in the respective sectors are run far more efficiently, and are therefore awarded expensive valuations. While the likely discount and loyalty bonus makes it an attractive proposition, you should invest in the CPSE ETF only if you think the underlying businesses have growth potential and intend to hold on to it over the long run.







Invest Rs 1,50,000 and Save Tax upto Rs 46,350 under Section 80C. Get Great Returns by Investing in Best Performing ELSS Funds

Top 10 Tax Saver Mutual Funds for 2017 - 2018

Best 10 ELSS Mutual Funds to invest in India for 2017

1. DSP BlackRock Tax Saver Fund

2. Invesco India Tax Plan

3. Tata India Tax Savings Fund

4. ICICI Prudential Long Term Equity Fund

5. Birla Sun Life Tax Relief 96

6. Franklin India TaxShield 

7. Reliance Tax Saver (ELSS) Fund

8. BNP Paribas Long Term Equity Fund

9. Axis Tax Saver Fund

10. Birla Sun Life Tax Plan



Invest in Best Performing 2017 Tax Saver Mutual Funds Online

Invest Best Tax Saver Mutual Funds Online

Download Top Tax Saver Mutual Funds Application Forms


For further information contact SaveTaxGetRich on 94 8300 8300

------------------------------------

Leave your comment with mail ID and we will answer them

OR

You can write to us at

Invest [at] SaveTaxGetRich [dot] Com

OR

Call us on 94 8300 8300



 

Popular posts from this blog

Surrender ULPPs

  ICICI Pru LifeTime and ICICI Pru Lifestage are Unit Linked Pension Plans. Such insurance linked retirement plans are neither good investments nor do they offer sufficient insurance cover. As you can see, these have turned out to be bad deals. In the Lifetime plan, the fund value is not even equal to the total premiums that you have paid and in the Lifestage plan your return is just about 6% which is quite low. The mortality charges are as per your age which is why they have increased. Moreover, once these plans matures, you will have to compulsorily opt for annuity (regular income) and the annuity rates are generally modest. Assuming these plans mature in the next one year, it will be wise to surrender the plan now and curb your future commitments.   Before you choose to buy a term plan, you have to consider a few points. You need to insure yourself, only during the time you are working and your family is financially dependent on you. At the age of 59, not all insurance companies w...

ICICI Pru Constant Maturity Gilt dividend

Invest ICICI Prudential Constant Maturity Gilt Fund Online ICICI Prudential Mutual Fund   has announced dividend under the following schemes: Scheme Dividend ( R /unit) ICICI Pru Constant Maturity Gilt-DQ 0.26543239 ICICI Pru Constant Maturity Gilt Direct-DQ 0.27171609 ICICI Pru Q Interval Plan I-D 0.10617296 ICICI Pru Q Interval Plan I Direct-D 0.10703967 ICICI Pru Q Interval Plan I Ret-D 0.10617296             The record date has been fixed as June 13, 2016.   ----------------------------------------------- Invest Rs 1,50,000 and Save Tax under Section 80C. Get Great Returns by Investing in Best Performing ELSS Mutual Funds Top 10 Tax Saver Mutual Funds to invest in India for 2016 Best 10 ELSS Mutual Funds in india for 2016 1. BNP Paribas Long Term Equity Fund 2. Axis Tax Saver Fund 3. Franklin India TaxShield 4. ICICI Prudential Long Term Equity Fund 5. IDFC Tax Advantage (ELSS) Fund 6. Birla Sun Life Tax Relief 96 7. DSP BlackRock Tax Saver Fund 8. Reliance Tax Saver (ELSS) ...

NPS Investment Choice for Safe Investors

Invest NPS Online       Whether they invested through SIPs or put in a lump sum amount, risk-averse individ uals have earned the highest returns. These are investors who stayed away from stocks and divided their NPS corpus between G class gilt funds and C class corporate debt funds. On average, gilt funds have given 9.75% annualised returns while corporate debt funds have churned out more than 11% in the past five years. As a result, the average return for ultra-safe investors in the past five years is in double digits. Even in the short term, ultrasafe investors have been the biggest gainers among NPS investors. Will the good times continue? The gilt funds of NPS are holding long-term bonds with an average maturity of over 19 years and a modified duration of about 9 years.These funds have done well because interest rate cuts have pushed down bond yields. But experts say this trend will not stay forever. NPS is a long-term investment and the bonds are predominantly held to matu...

Buy Health Insurance Plan even if you are covered with my Employer

Buy Health Insurance Plan Online Yes, getting a private insurance cover now, which extends beyond your retirement age, is recommended There are a few reasons why buying a health insurance plan may make sense even though you get medical insurance from your employer. Here are the points you need to think about. Firstly, your employer's insurance coverage will only protect you as long as you are employed with the company. The policy will terminate when you quit the job or when you retire. Post retirement is perhaps the phase when one needs it the most but you won't have it then. Moreover, buying a new insurance policy after the age of 50 means that there will be no coverage for pre-existing diseases.   Lastly, health insurance policy you get from your employer may or may not cover your dependants. ------------------------------ ----------------- Invest Rs 1,50,000 and Save Tax under Section 80C. Get Great Returns by Investing in Best Performing ELSS Mutual Funds Top 10 Tax Saver M...

SBI MAGNUM MIDCAP ONLINE

Invest SBI MAGNUM MIDCAP ONLINE   SBI MAGNUM MIDCAP fund didn't fare well in its initial years but, in recent years, has steadily improved its performance under the capable hands of its current fund manager. Although investing predominantly in mid-cap stocks, the average market capitalisation of its portfolio is lower than other category peers.   Although the stock selection approach is mostly bottom-up , the fund manager doesn't shy away from taking bold sector bets , as is reflected in its large exposure to the healthcare sector. She is equally adept at handling performance across market cycles--the fund has captured more of the upside during market upticks and contained the downside during downturns in a better manner than its peers.   Given its superior risk-reward equation, the fund is a worthy pick in its category.     ----------------------------------------------- Invest Rs 1,50,000 and Save Tax under Section 80C. Get Great Returns by Investing in Best Performing EL...
Related Posts Plugin for WordPress, Blogger...
Invest in Tax Saving Mutual Funds Download Any Applications
Transact Mutual Funds Online Invest Online
Buy Gold Mutual Funds Invest Now