The fifth instalment of the Central Public Sector Enterprises Exchange Traded Funds (CPSE ETFs), through which the government intends to raise at least Rs 3,500 crore, will be launched on Tuesday for anchor investors. Subsequently, it will be open for all investors from Wednesday to Friday.
Financial planners believe long-term equity mutual fund investors and first-time retail investors should stay away from thematic funds despite low valuations and the discount on offer, as the fund is concentrated and susceptible to high volatility.
The CPSE ETF, which will be managed by Reliance Mutual Fund, has a concentrated portfolio spread across a few sectors such as energy, oil PSU, infrastructure & engineering and PSU financials. Top four holdings — ONGC, Indian Oil, Coal India and NTPC — account for 77.7 per cent of the portfolio.
In terms of valuations, the Nifty CPSE Index trades at a PE (priceto-earnings) ratio of 8.43 compared to the Nifty 50 PE of 26.32. It offers a dividend yield of 5.52 compared to Nifty 50’s 1.25 per cent.
“First-time investors would be better off with a well-diversified equity mutual fund than a thematically concentrated portfolio,” says Anup Bhaiya, MD and chief executive officer, Money Honey Financial Services.
In the past one year, the CPSE ETF has lost 7.62 per cent against the Nifty’s gains of 10.3 per cent. In the past, investors have been disappointed with PSU stocks, which have been mostly underperformers.
“Mutual fund investors would do well to invest in actively managed equity mutual funds where chances of alpha creation are high as compared to passively thematic basket of government companies,” says Jignesh Shah, founder, Capital Advisors.
ETFs score on lower expense ratio and this one will have an expense ratio of less than 1 basis point, the lowest for the industry. In addition, all categories of investors will get an upfront discount of 4 per cent on underlying shares purchased from the government. No discount will be offered on the purchase of index constituents from the open market.
The latest CPSE ETF issue will be open for retail investors from March 20. All the previous four CPSE ETF issues have received a good response from investors, with the fund house refunding extra subscriptions.
The new fund offer of CPSE ETF was first launched in March 2014 in which the fund house mobilized Rs 4,363 crore. CPSE ETF’s further fund offer (FFO) was launched in January 2017, where it collected Rs 13,705 crore, out of which the fund refunded Rs 7,705 crore due to the issue size limit of Rs 6,000 crore.
CPSE ETF further fund offer (FFO 2) in March 2017 collected Rs 10,083 crore, out of which Rs 7,583 crore was refunded to investors due to the issue size limit of Rs 2,500 crore. CPSE ETF further fund offer (FFO 3) was launched in November 2018 and collected Rs 31,203 crore, out of which Rs 14,203 crore was refunded to investors due to limited issue size of Rs 17,000 crore.