Goldman Sachs GS CPSE ETF-Can you bet to get higher returns?
Goldman Sachs NFO for Central Public Sector Enterprises (CPSE) Exchange Traded Funds (ETF) is going to open up today. Yesterday there was a half page advertisement in the Economic Times news paper about this. This GS CPSE ETF objective is to invest in Maharatnas, Navratnas and Miniratnas and create long term appreciation for your money. Can you bet on this Goldman Sachs CPSE ETF to get good returns? How and when to invest in such ETF’s? Is it the right time to invest in a GS CPSE ETF or not?
What is this GS Central Public Sector Enterprises ETF is all about?
Goldman Sachs CPSE ETF mirrors the returns of CPSE Index on National Stock Exchange (NSE). It would hold the same stocks on the NSE CPSE Index in similar proportion in this index. GS ETF would collect money through this NFO and deposit with Govt. of India, which in turn deposits, shares in an ETF. Means you are indirectly investing in such Public Sector Enterprises through Goldman Sachs ETF.
Also Read: What are ETF's and how do they work?
Key Features about Goldman Sachs CPSE ETF
5% upfront NFO discount: Means when Govt. of India deposits the shares in ETF, they would provide a 5 % discount in existing prices to this ETF scheme. E.g. ONGC is trading at Rs 320 share price. But when GS ETF purchases from Govt. of India, they would allot shares @ 5% discounted prices and would be allotted at Rs 312. This discount would be given based on the underlying CPSE Index shares.
6.66% Loyalty Units after 1 year of holding period: GS ETF offers loyalty units for 1 for every 15 ETF units held by you for one complete year from the date of allotment. Means you would get benefitted with 6.66% as returns irrespective of market price of such unit after 1 year holding period.
Portfolio diversification: This ETF offers a diversification of portfolio by investing in Maharatnas, Navratnas and Miniratna public sector units.
Compliant with Rajiv Gandhi Equity Saving Scheme (RGESS): This scheme is compliant with RGESS scheme floated in 2013. If you are a new investor and investing for the first time in stock market, you would get tax benefit up to Rs 25,000 under this scheme. This is a one time benefit. There was discussion with Govt. of India to increase this limit to Rs 2 Lakhs, however yet be closed by Govt.
Other features of this GS CPSE ETF scheme
- Opens for subscription – 19-Mar-2014
- Closes subscription – 21-Mar-2014.
- Scheme reopens for subscription continuously from 11th April, 2014
- Retail investors can invest minimum of Rs 5,000 and in multiples of Rs 1 thereof
- Listing of ETF on NSE and BSE.
Where does this GS CPSE ETF invest?
It invests mainly in below stocks at percentage indicated:
- ONGC 26.72%
- Gail 18.48%
- Coal India 17.75%
- REC 7.16%
- Oil India 7.04%
- Indian Oil 6.82%
- Power Finance 6.49%
- Container Corporation 6.4%
- Bharat Electricals 2%
- Engineers India 1.13%
What is the product label for this NFO?
As per SEBI guideline, all NFO’s should have product label indicating the risk of the product. This product label is “BROWN” which indicates high risk.
How to buy GS CPSE Exchange Traded fund ?
Since this is NFO, you should have mutual fund demat account. Login to your account and click on NFO and select this ETF and put a request for purchase. Once the ETF units are alloted you can sell them at any time after 11th April, 2014 when they are listed on stock exchanges.
Positive factors to invest in Goldman Sachs CPSE ETF
- PSE stocks available at attractive valuations: Public Sector Enterprise stocks come with attractive valuations. These are inexpensive now.
- PSE financial performance is good: PSE stocks have been consistently performing well in term of revenues and profits and providing good dividends. CPSE index gave average 3.5% dividend. Current markets dividend is at 1.4%.
- Low fees: ETF comes with low fund management fees.
Negative points to be considered before investing in GS CPSE Exchange Traded Fund
- Good PSU stocks avoided: This GS CPSE ETF ignores several good PSU enterprises or stocks, such as Powergrid, NMDC etc. in their portfolio. Avoiding good opportunities can lower your returns in the long run.
- PSU stocks are under performers: Shares of state run companies are under performers. BSU PSU index rised only 0.6% in last 15 months compared to 12% rise in BSE SENSEX.
- Too much weightage to 2 sectors: This NFO focuses mostly on energy and metals. More than 2/3rd of the portfolio invests in energy and metal stocks where business is cyclical in nature. This would limit your returns in the long run.
- CPSE ETF underperformer: Even CPSE ETF is under performer (underlying stocks have not done well) compared to the BSE PSU index.
- 15 Schemes of Goldman Sachs, only one is ranked: GS has 15 mutual fund/ETF schemes as of now in India. Only one among them is ranked by Crisil as Rank-2. All others are not ranked.
Conclusion Remarks: I am not against this GS CPSE ETF scheme. It would be high risk to invest now where the markets are at peak. If you are investing in such schemes, you should know when to enter and when to exit. However, is this possible for you to track this? No. Hence, instead of investing in such high risk investment option where the ETF index is under performing and which would undergo markets fluctuations, my suggestion to investors is to wait and get into this ETF when markets take correction and available at cheaper valuations. Since this ETF mirrors CPSE index, any correction in stock market would reflect in this index and you can get GS CPSE ETF at lower prices later-on during such corrections.
I would love to hear your views on this GS CPSE ETF
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Goldman Sachs CPSE ETF