Minimum investment size for different investor class:
Gaining exposure in as many as 10 PSUs, including GAIL, REC, CCI, ONGC, CIL, OIL, PFC, EIL, IOC and Bharat Engineering, retail investors can invest in the CPSE-ETF with a face value of Rs. 10/unit with a minimum capital of Rs. 5,000. Maximum limit for investment in the new ETF is though Rs. 10 lakhs. The previously included PGCIL srip is removed from the basket as it has a lock-in period of 1-year since the FPO or Follow-on Public Offer in December last year.
Other investor classes including QIBs or non-institutional investors can subscribe to the CPSE based ETF with a minimum capital of Rs. 10 lakh.
Fund allocation under the CPSE-ETF
As per the draft disclosure, allocation of funds in the scheme in total in debt securities, equity shares and derivatives instrument shall not be over 100% of net assets under the scheme. Further, investment in derivatives instruments, including interest rate swaps, stock futures, forward rate agreements and others is capped to a maximum of 10% of the net assets under the scheme.
The allocation of funds in the derivative instruments will able fund managers to preserve the portfolio value as well as increase the number of units for the investor.
Benefits of the investment for investors
As, public-run companies offer substantial dividend pay-out and also the investment in the avenue can provide tax-relief for first-time equity investors under the RGESS or Rajiv Gandhi Equity Savings Scheme, the investment can help taxpayers plan their taxation matters for the financial year.
For, availing the tax-deduction under the scheme, lock-in period i.e. a fixed or the flexible lock-in as specified under the RGESS scheme shall apply. Fixed lock-in commences from the time investor purchases the unit in a given financial year to March 31st of the following year. On the other hand, flexible lock-in for a period of two years shall begin after the immediate end of the fixed lock-in period.
Nonetheless, as the performance of the underlying PSU index on the BSE has not been good in the past few years and has shedded in value considerably in comparison to the benchmark SENSEX, performance of CPSE-ETF is questionable. And better economic environment plus stable government can only support the growth and performance of the public-run companies and hence the CPSE-ETF. Read about how public sector entities destroyed investors wealth.