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Should I invest in CPSE ETF

cpse etf

Should I invest in CPSE ETF

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Most mutual funds in India are generally pretty much like numerous other funds. Many claim uniqueness but are in reality occur in a mould which are set on common platforms. However, if there’s one fund that has some legitimate claim to being distinctive from every other, then it’s the CPSE ETF.

The name stands for Central Public Sector Enterprises Exchange Traded Fund, which really is a mouthful but virtually explains what the fund is. Needless to say, the uniqueness, on it’s own does not signify that the fund is investment worthy ­ it’s unusual nature {means that|implies that|ensures that} investors must {look at it|view it|consider it} closely.

Currently , this fund is in news because it’s having an’FFO ‘, a’Further Fund Offer ‘, that is not really a common term either. To know how this fund is structured and how a FFO plays a function in deciding whether you must invest in this fund or not, one needs to know the unusual advantage this fund gives to investors who invest in FFOs and those who committed to the the initial NFO

ETFs are often predicated on an equity index and replicate that index within their portfolio to ensure that investors can invest in it easily. The CPSE fund’s underlying index is one which NSE created specifically for this fund when it was launched. The index has ten stocks as its components, Coal India, GAIL, ONGC, Indian Oil, Bharat Electronics, Oil India, PFC, REC, Container Corp and Engineers India.While ETFs are MFs, are bought and sold on stock exchanges like mutual funds. An investor who would like to invest in this basket of public sector stocks can buy this ETF instead.

At the time of the fund’s launch in March 2014, investors who had invested in the initial offering received a 5% discount in price over what would have been the normal price. Moreover, there clearly was a unique ‘loyalty bonus’ built in to the fund ­ if the initial subscribers stuck around for a year , then they’d get  a 115 bonus.

They certainly were sweeteners that the government had thrown in to make sure that investors bought the fund in good numbers in the NFO and then made adequate returns to stay| enthusiastic about the fund. This structure has succeeded in this job and so it’s not surprising that the government is repeating the incentives now when it needs a fresh round of disinvestment.

Investors who invest in FFO too will receive a 5% discount on the market price of the underlying stocks, along with bonus units after finishing a year. Investors from the initial offer of 2014 have observed money grow 12.21% pa, in addition to the bonus, that was an additional one time boost of 6.66%.

Clearly , this can be a fund that has reasonably good returns, especially with the enhancement of the special deal given by the government. So could it be a great investment for fresh investors? It’s important to note that the advantages this fund brings includes a large amount of caveats.

In the first place it is a thematic fund, and it’s generally not good for fund investors to invest in sectoral or even a thematic fund ­ diversified funds are usually better.

However, even though one accepts the logic of a particular theme, it needs to be an investing-related theme, like banks or IT or consumer goods or auto or something different seems like doing better compared to rest of the market. The CPSE ETF is in contrast to that. Instead, it is a thematic fund where the theme is actually the promoter. What’s worse is that it’s not really a promoter who has a great track-record of looking following the interest of the business or minority shareholders.

Given the necessity of the government to keep returning for more funds, and the sweeteners it has put with this deal, investing a small amount in the fund might make sense, as long as an investor understands the uncertainties that originates from being the Government of India’s business partner.

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