Unexpectedly, CPSE ETF Has Proven to be an Interesting Idea
bonus was paid out, made much more — about 35% in half the time. Without the incentives, the returns would be just about 4.5% p.a.
For the government, funds like the CPSE ETF offer an on-demand, instant divestment route that is always open. This is the solution to a different problem than was talked about when the such a fund was first mooted a few years back. At the time, the idea was that a PSU ETF could be used to bundle less desirable PSU stocks with more saleable ones, sort of like what your provisions store does to get rid of hard-to-sell items. That idea was basically a con job. By contrast, the CPSE ETF consists entirely of investible PSUs. ETFs are always based on an index. The CPSE fund’s underlying index was a new index of the same name that the NSE constructed specifically for this fund. This index had 10 stocks as its components. These were Coal India, GAIL, ONGC, Indian Oil, Bharat Electronics, Oil India, PFC, REC, Container Corp and Engineers India.
For the government, this should be an idea worth exploring further. Even if it has to supply an annual stream of incentives for investors who stick around for a year, it provides an avenue for continuous disinvestment that can get easy participation from all classes of investors, including the retail investors that it covets. For investors, the incentives could provide a cushion that makes a PSU ETF a little less risky to buy.
Normally, it’s not the wisest thing to buy any specialty fund. Generally, a specialty or a thematic fund has to be based on a sector or some other investing idea, like banks or IT or consumer goods or auto or something else that an investor may think will do better than the rest of the market. Funds like CPSE ETF aren’t like this. Instead, they are a thematic fund where the theme happens to be the promoter. However, if the promoter knows that it has to put some icing on the cake to sell it, then it may not be a bad idea.
Despite the handicaps, the fund that was launched 2 years ago, could be the template for future divestment success