In her maiden speech on the Union Budget for FY 2019-20, the Finance Minister Mrs Nirmala Sitharaman announced that the government of India (GOI) will launch its Central Public Sector Enterprises (CPSE) related exchange-traded fund (ETF) on the lines of Equity Linked Savings Scheme (ELSS) i.e. a tax-saving mutual fund scheme format.
So from now onwards, like ELSS, investments made in the ETFs will be subject to lock-in for 3 years and eligible for tax deductions of up to Rs. 1.5 lakhs under section 80C of the Income-Tax Act.
This announcement can be game-changer news for investors of CPSE ETF.
How? Keep reading to know more.
Before I begin, let’s first see what ETFs are.
Exchange-Traded Funds (ETFs) are the kind of that invests in an index, a commodity, currencies, bonds, etc.
The best part of investing in ETF is, it gives you the flexibility to be any kind of investor that you want to be. ETFs can prove to be excellent investment instruments for achieving your goals, provided used wisely.
Also Read: 10 Best Performing Index Funds To Consider Investing
CPSE ETF follows the NIFTY CPSE TRI Index, which comprises 11 stocks and whose main aim is to help the Government of India (GOI) in the disinvesting target of its stake in a few CPSEs via the ETF route. The stocks which comprise a three fourth of the total portfolio are ONGC, Coal India, NTPC and IOCL.
Announcements made regarding the status of CPSE ETF will prove to be a game-changer for the reasons mentioned below:-
Though the stocks in the portfolio are attractive of high dividend yield and low valuation, this ETF is suited for investors with a high-risk profile.
The GOI is planning to raise up to Rs. 10,000 crore from the 6th tranche of CPSE ETF which would be expected to be launched on July 18th.
Through the earlier 5th tranches of the CPSE ETF, the GOI has already raised Rs. 38,500 crore:
This 6th tranche of CPSE ETF is important as the government aims to raise a record Rs 1.05 lakh crore through disinvestment of public sector companies in FY 2019-20, up from Rs. 85,000 crore raised last fiscal.
Also Watch: Budget 2019 Highlights
CPSE ETF is currently managed by Reliance Nippon Asset Management.
This is an ETF launched by the government on March 28, 2014, wherein the government has so far offloaded a stake in 10 PSU companies garnering Rs. 38,500 crore. The current NAV of this fund is Rs. 26.3 (as of 08 Jul 2019).
|Rating by Groww||1 star|
|AUM (Fund Size)||Rs. 10,657 Cr|
|Minimum SIP||Not Supported|
|Minimum SWP||Rs. 500|
|Performance w.r.t its Benchmark||under-performance|
|Age of the fund||5 years old|
I believe that the sectors included in the index are the major building blocks which decide the growth momentum of the Indian economy in the near future.
With the Modi Government at the centre, for whom one of the key agendas is to enhance the efficiency of the PSUs and make them more globally competitive, gives me confidence in the future potential of this investment instrument.
I also believe that our Prime Minister who is known to have turned around PSUs in Gujarat will surely try to work his magic when it comes to this segment.
The performance of the CPSE ETF has been disappointing over the long run, but with this news, it is expected to bounce back in near future.
However, investors should choose to invest in this ETF just not for tax benefit but also according to their risk appetite.
Disclaimer: The views expressed here are those of the author and not that of Groww