Amazing Facts about CPSE ETF
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CPSE ETF is divided into two parts, CPSE & ETF.
ETF is an Exchange-traded fund traded on Exchange, similar to a mutual fund but Etf follows an index.
CPSE full form when expanded to its meaning is Central Public Sector Enterprises. CPSE follows the Nifty CPSE Index. This ETF is a conglomeration of PSU stocks.
CPSE ETF NAV is dynamic as it is traded on the exchange. The expense ratio is very low as it is passively managed.
It is made of stocks of Central Government companies only which are traded on the exchange. It does not involve any private sector company.
Companies constituting the ETF change each time the new version of ETF is launched. The first one came in April 2014 which was a runaway success.
FFO stands for Further Fund Offer in the case of ETF. New companies can be added to the existing ETF that is why it is called FFO.
Rational behind Government launching ETF
The government wants funds and does it through diversification by selling its own stake of a PSU unit. The government could sell one stock at a time but that is cumbersome.
Also, one company may not be able to generate enough interest or demand in the market, so the government decided to club altogether and make it one unit in the form of ETF.
Also, all companies may perform equally, so clubbing all together hedge the customers from overall loss. It offers a discounted rate of shares as compared to the price of individually share.
What is meant by CPSE ETF?
CPSE ETF is an exchange-traded fund that follows the CPSE ETF index. The ETF invests in 12 PSU stocks that follow the CPSE index.
Like other ETF, this is traded like a stock on the stock exchange. In each tranche for ETF FFO, the composition and proportion of companies change.
You can start investing starting from Rs.5000 up to 2 Lakh in the retail category. Retail Category gets the maximum discount.
For buying ETF, you need trading and a Demat account, Bank Account and a Broker as it is traded on Exchange. The trading is the same as share trading on the Exchange.
You either buy or sell ETF on exchange. After the investment, within 15 days allotment takes place, within 5 days the ETF gets listed. Within 20 days, you can start trading on the exchange.
Once listed, you can sell it with the discount offered because the government offered the same share at less than the market price of the share.
Dividend given by the company by increasing the NAV, it does not get distributed separately but you can benefit.
ETF pays out the full dividend yield generated by the stock that is held within the fund. CPSE ETF dividend yield of CPSE basket is 5% as compared to 1.25% for Nifty.
CPSE is open-ended. No window for buying or selling. There is no locking period to stay invested.
ETF tracks a portfolio, hence more secure. The risk is minimal as they are all blue-chip PSUs. But the market risk is associated with Etf but comparatively less.
For the current share price, you may check the Reliance MF CPSE ETF NSE price. The current CPSE ETF share price is around 16.55 INR as of March 12, 2020.
CPSE ETF NAV Live price is 16.65 subject to fluctuations. CPSE ETF NAV is dynamic and decided during the trading day.
CPSE ETF allotment FFO price would be calculated after adjusting discounts offered by the government of India FFO of the Scheme to buy the Nifty CPSE Index shares out of the FFO Proceeds.
CPSE ETF portfolio is based on the assigned weightage on every stock/group of stocks as follows:
|Details of Portfolio||Scheme / Weightage||Category|
|No Of Stocks||12||63.4%|
|Top 5 Stock Weight||86.11%||38.54%|
|Top 10 Stock Weight||97.82%||55.59%|
|Top 3 Sector Weight||72.59%||43.11%|
Under CPSE ETF FFO 5, Stocks invested in:
- Power Grid Corporation of India Ltd.
- National Thermal Power Corporation Ltd.
- Coal India Ltd.
- Oil & Natural Gas Corporation Ltd.
- Bharat Electronics Ltd.
- NMDC LTD
- NHPC Ltd.
- Oil India Ltd.
- NBCC (India) Ltd.
- NLC India Ltd.
CPSE ETF FFO 5 was launched on 17th July 2019. Reliance Nippon Life Asset Management Ltd manages FFO of CPSE ETF.
Benefits of CPSE ETF Fund
One big benefit of investing in the CPSE ETF is it is a low-cost investment proposition with a low expense ratio of less than 1 basis point, the lowest for the industry.
A good conglomerate of 10 securities, CPSE ETF consists of blue-chip PSU companies, the Maharatnas, Navratnas, and Miniratnas of the government of India.
Disadvantages of the CPSE ETF
- Low Trading Volumes
- Longer Investment Horizon
- Tax Implications
- Companies involved may not offer a big return
CPSE ETF Taxes
Mutual funds create and redeem shares with “in-kind” transactions which are not considered as sales. Hence they may not create taxable transactions. Whereas, Selling an ETF is considered as trade and can trigger a taxable event.
Remember, it is not an opportunity to make big money.
7th Tranche of CPSE ETF Open
21st January 2020 is the 7th Tranche of CPSE ETF to be launched. The retail category will get 2.5 to 3% discount. 12 companies will be included for investment.
Nippon India will manage it. You may decide for these stocks individually or by a basket of these stocks.
Earlier, retail investors got 3% discount. Earlier CPSE ETF did not generate an overwhelming return. This time, it is a focus fund. You distribute your fund, some portion in ETF, and rest in equity, some in green stock and some in red stock.
ETF is cheap but individual equity is relatively expensive. But if individual equity gives higher return then you should not mind paying commission to the fund manager.
PSU fund is cheaper than individual stocks. Do not run after the return. Do not put all your money in ETF, the key is to diversify. Finally, it is your money so do the due diligence before investing.
CPESE ETF FFO6 Highlights
- CPSE ETF helps facilitate Government of India’s initiative to disinvest some of its stake in select PSUs
- CPSE ETF FFO 6: 7th tranche of CPSE ETF since March 2014.
- CPSE ETF consists of 12 PSUs
- CPSE ETF FFO6 Base size is 10,000 crore with green shoe options of additional 8000 crore
- Offers a discount of 3% to all categories upfront
- Earlier issues launched under the scheme has been met with an overwhelming response
CPSE ETF Reviews Conclusion
If you want to buy PSU stocks, do not buy individually because that way it will be costlier. Buy ETF as you get a bouquet of PSU stocks at one go at a discounted rate. That way your risk diversifies, trading and investment together. Sell immediately, the moment you get the discount may be within 10 days to minimize the risk of a bigger loss or lesser profit.
CPSE ETF Stock Trading FAQs
Q1. What is CPSE ETF fund?
CPSE ETF is an exchange-traded fund. It invests in 12 Maharatna PSUs. These PSUs are a part of the Nifty CPSE Index.
Q2. How much to invest in CPSE ETF?
Anything between investing a minimum of Rs 5,000. For non-institutional investors, the minimum investment amount is Rs 2 lakh.
Q3. What is CPSE?
Central public sector enterprises (CPSEs). Companies that are PSUs under the direct control of the government of India.
Q4. Is there a Lock-in Period in CPSE ETF?
CPSE is open-ended. No time window for buying or selling. No lock-as well. Lock-in period for anchor investors only.
Q5. What do I need to have to apply for CPSE ETF?
For buying ETF, you need trading and a Demat account, Bank Account and a Broker as it is traded on Exchange. The trading is the same as share trading on the Exchange. So you require all those which you require for equity trading.