Investors deploying their money in ETFs betting on public sector enterprises will now get tax benefit similar to tax saving ELSS or equity linked saving schemes. The proposal to this effect has been made in the Union Budget announced yesterday.
Henceforth, similar to ELSS, investments made in the ETFs will have a lock-in period of 3 years and will qualify for tax deductions of up to Rs.1.5 lakh under section 80C of the Income-Tax Act.
CPSE ETF operating similar to a fund scheme has underlying stock of 11 major PSUs including ONGC, NTPC, Coal India, IOC, REC, PFC, Bharat Electronics, Oil India, NBCC, NLC India and SJVN.
The passively managed fund has a expense ratio of less than 1 paise. 3-year return from CPSE ETF has been 9.19% while one-year return stands at 11.69%.
Divestment is a priority for Modi government and tax benefit is likely to boost participation of retail investors in the investment product category. Nonetheless, experts warn against betting on the product only for the tax benefit as past performance record cannot be overlooked and should be given more weightage.