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    Why one should book profit in CPSE ETF within 6 months

    Synopsis

    The offer is open for retail investors for a day on July 19.

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    CPSE ETF has raised Rs 38,500 crore for the government and attracted 8.76 lakh investors.
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    Mumbai: Investors looking to put money in the next tranche of Central Public Sector Enterprises’ (CPSE) Exchange Traded Fund (ETF), which comprises a basket of public sector firms, could look at booking profits within six months of the issue.

    The offer — the sixth such issue since March 2014 — is open for retail investors for a day on July 19.

    Retail investors can participate in the ETF offering by investing a minimum of Rs 5,000 and in multiples of Rs 1 thereafter. For non-institutional investors, the minimum investment amount is Rs 2 lakh.

    “Discount, dividend yield and low P/E are the main carrots in CPSE FFO5,” said a note by HDFC Securities.

    “Investors could look to encash these benefits in the first 3-6 months of allotment provided the markets and PSU sector are conducive for profit taking. Such investors have done well in the past two issues.”

    Last year the CPSE ETF has returned 0.61 per cent, while over a threeyear period the fund has returned 5.61 per cent. As against this, in the same periods, the S&P BSE Sensex has returned 7.08 per cent and 11.97 per cent, respectively. A discount of 3 per cent will be offered to small investors on the Future Fund Offer (FFO) reference market price of the underlying Nifty CPSE Index Shares. The FFO allotment price would be equal to 1/100th of Nifty CPSE index, post adjusting the discount.

    CPSE ETF runs a concentrated portfolio with a handful of stocks having weights of as high as 20 per cent on the underlying index. The portfolio is concentrated towards the energy and oil sector.

    “First-time investors or investors looking to create wealth through equities as an asset class over the long term are better off with diversified equity mutual fund schemes,” says Amol Joshi, founder, Plan Rupee. The ETF will have an expense ratio of less than 1 paisa, while actively-managed equity mutual fund schemes have expense as high as 2 per cent.

    This is the sixth tranche of CPSE ETF managed by Reliance Nippon Life Asset management with a base size of Rs 8,000 crore with an additional green shoe option.

    Against the anchor base issue size of Rs 2,400 crore, Reliance Nippon Life Asset Management received anchor subscription worth Rs 19,980.32 crore leading to anchor portion being oversubscribed 8.33 times. Few leading QIBs who participated include Société Générale, Credit Suisse, Morgan Stanley, Goldman Sachs, Merrill Lynch, Citigroup, Copthall, Avendus, ICICI Prudential Mutual Fund and Edelweiss Mutual Fund.

    CPSE ETF, since its first launch in March 2014 and subsequent four tranches, has raised Rs 38,500 crore for the government and attracted 8.76 lakh investors.

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