What is CPSE ETF?
Central Public Sector Enterprises Exchange Traded Fund (CPSE ETF) is an open-ended ETF that was launched in Mar 2014. Though an ETF is a type of a mutual fund, usually, you can trade (buy/sell) the units on a stock exchange via a trading account. Now that you know what is CPSE ETF, let’s look at the portfolio composition of the fund.
CPSE ETF operates a concentrated portfolio that consists of stocks with a 20% weight on the underlying index, i.e. Nifty CPSE Index. Currently, the ETF invests in stocks of 11 public companies that belong to the energy and oil sectors:
- Bharat Electronics
- Coal India
- NBCC India
- NLC India
- Oil India
- REC and
Who manages CPSE ETF?
CPSE ETF is managed by Nippon Life India Asset Management, which was formerly known as Reliance Nippon Life Asset Management.
CPSE ETF price
The fund is listed on both NSE and BSE. You can track the CPSE ETF price on NSE here. In addition to the CPSE ETF price, Tickertape also displays an investment checklist detailing the things to look at before investing in units of CPSE ETF so you can make an informed investment decision. Additionally, you can also have a look at the key metrics of CPSE ETF and other stocks that you wish to track to gain more insights.
Salient features of CPSE ETF
Understanding the characteristics of the Central Public Sector Enterprises Exchange Traded Fund also helps in gaining deeper insights into the fund and making good decisions. Here are some features of CPSE ETF.
CPSE ETF units are issued at a discount
Each tranche of CPSE ETF is offered at a discount, which has been between 3% and 5%. Usually, a large group of investors, mainly institutional investors, park their funds in this ETF to benefit from the discount and exit shortly. However, investing in the fund for short-term just to take advantage of the discount would not be feasible for retail investors who don’t invest large sums in the avenue.
CPSE ETF doesn’t guarantee outperformance
As you know, mutual funds are managed by professional fund managers. Thanks to their expertise, you can enjoy decent returns on the fund while also minimising the risks. However, in case the manager’s judgement turns out to be wrong for any reason, you would also have to partake in the loss incurred by the fund. Fortunately, CPSE ETF is protected from such a risk as the fund passively tracks the Nifty CPSE Index. Still, this doesn’t mean that the ETF guarantees outperformance because the Nifty CPSE index, the benchmark that the ETF follows, is custom-built. But, how does that matter?
Typically, a fund benchmarked against a broad-based index such as Nifty or Sensex is better protected from the fund manager’s errors. Because, indices based on broad market capitalization filter out the stocks of companies that lose the market-cap (m-cap) automatically and vice versa, without manual intervention. Meaning, the loss incurred by the fund on this account is limited to an extent. However, since Nifty CPSE index is custom-built, the replacement of stocks doesn’t happen automatically. This is why CPSE ETF may not be well-insulated from loss of m-cap of the constituent companies.
CPSE ETF is not well-diversified
CPSE ETF is a highly concentrated mutual fund as it only consists of 11 stocks. Further, over 77.64% of the fund is occupied by only 4 of the constituent stocks—ONGC, NTPC Ltd, IOCL, and OIL, which shows that the ETF is fairly underdiversified. Moreover, the CPSE ETF is heavily exposed to the energy industry, which is cyclical in nature. Meaning, any contraction in the economic activities would affect the industry and end up reflecting on the fund’s performance.
Short-term gains on CPSE ETF may be set-off by transaction costs
As mentioned before, the tranches of CPSE ETF are offered at a discount, which may be an attraction to invest. However, when you compare the savings earned by way of the discount along-side taxes, the benefit may not be significant in the short-term. Here’s why.
The gains you earn on the units of equity ETF that you hold for a short-term, i.e. less than a year, attract a short-term capital gain tax of 15%. Whereas, the gains you make on selling the ETF units after holding them for over a year are exempt up to Rs 1 lakh, beyond which they attract a long-term capital gains tax of 10%. Therefore, it is important to do a cost-benefit analysis when deciding the investment period for CPSE ETF.
CPSE ETF may not offer aggressive growth
As mentioned before, CPSE ETF consists of stocks that belong to state-run companies. It is widely known that public companies don’t concentrate on creating wealth but are mostly driven by a social objective. This is why CPSE ETF may not offer aggressive growth, which may be against your investment objective.
Now, let us read two investment essentials of CPSE ETF.
How to invest in CPSE ETF?
You can trade the units of CPSE ETF in two ways. First, like you do with a share on a stock exchange. Meaning, buy units of CPSE ETF either on BSE or NSE. Second, if you are looking to buy over 1 lakh units of CPSE ETF, you can buy them directly from the mutual fund house. The advantage? You can enjoy a discount of 3% on the units.
Does CPSE ETF have a minimum investment?
Yes, CPSE ETF has minimum investment limits for various types of investors, as follows:
- Retail investors: Rs 5,000
- Non-institutional investors and qualified institutional buyers: Rs 2 lakh
- Anchor investors: Rs 10 cr
Now that you know what is CPSE ETF and other information about the option, go ahead and evaluate your investment objectives, risk profile, and returns expectations before signing up for it.
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