CPSE ETF 5th Tranche review – Mar-2019 – Should you invest or give it a pass
CPSE ETF FFO 4 –
CPSE, the ETF route for government’s divestment plans launches its fifth installment on 19th March, 2019 for anchor investors. Bidding open for all investors 20th March –22nd March 2019. Government intends to raise at least Rs 3,500 crore with this installment.
CPSE ETF tracks Central Public Sector Enterprises (CPSEs) 11 companies, i.e., ONGC, NTPC, COAL India, IOC, REC, Power Fincorp, BEL, OIL, NBCC, NLC, SJVN.
CPSE ETF Periodical sale – CPSE idea came as an after effect of getting lukewarm response from investors on individual company FFOs. Government tried to make it lucrative by offering PSU companies together in a bouquet through ETF IPO. Affter its successful launch in March 2014, government has come with periodical offer for sale, 2019March is oing to be the 5th tranche.
1. Launched in March2014, government mobilized Rs 4,363 crore
2. January 2017, FFO Collected Rs 6,000 crore.
3. CPSE ETF further fund offer (FFO 2) in March 2017 collected Rs 2,500 crore.
4. CPSE ETF further fund offer (FFO 3) was launched in November collected Rs 17,000 crore.
The point here is what is on offer and is it worth your money and time?
The Best points about CPSE ETF
1. CPSE ETF allows you to invest in the select 11 PSU companies at one go, without burning a hole in your pocket in a mutual fund format.
2. The Price to Earning ratio of the CPSE ETF is lower than 9, while Nifty 50 is trading at 26.32
3. The CPSE companies offer a dividend yield above 5, while Nifty 50 companies presently providing below 2%
4. ETFs Boasts of very low management fee in comparison to actively managed funds.
The Really bad-points of CPSE ETF
1. CPSE ETF has lost 7.62%, while Nifty 50 has gained 10.3% in the last year.
2. The companies listed in the CPSE ETF are not necessarily lucrative, moreover,
3. Government also forces profit making PSUs to buy loss making counterparts at will
3. Just 4 companies— ONGC, NTPC Ltd, Coal India Ltd and India Oil Ltd—make up for 77% of the ETF.
4. The CPSE ETF has delivered poor returns in the past, five-year returns is lower than 6% CAGR
Though ETFs are earning mind-share of investors over the years and makes a good point in case looking at its lower cost structure. However, one needs to look at the underlying assets/ companies in the index. Overall, there are other ETFs which are better options if you want to stick to low cost investing, such as NIFTY 50 ETF, Tracking Nifty 50. In the mid-cap space, you can consider JUNIORBEES. You may also consider Pharma, Banking ETF as thematic funds (not recommended for
MyMoneyStreets take – Don’t buy CPSE ETF if you are not absolutely sure about what are you getting into