CPSE ETF FFO – Jan – 2017 – Is it safe investment option?

CPSE ETF FFO - Jan-2017 - Is it safe investment optionCPSE ETF FFO – Jan – 2017 – Is it safe investment option?


CPSE ETF Further Fund Offer (FFO) would open for subscription on 18th January, 2017. CPSE ETF First tranche has given amazing returns to Investors. CPSE ETF is a mutual fund which invests in NIFTY CPSE Index. Govt. of India is offering 5% discount on CPSE ETF. This ETF is creating buzz in the stock markets now. What are the features of CPSE ETF FFO of Jan-2017? Is it a safe investment option to invest in CPSE Exchange Traded Fund FFO? How does CPSE ETF Tranche-I performing? In this article, I would review CPSE ETF FFO of Jan 2017 and provide your some insights about this ETF.

What is CPSE ETF?


What is the CPSE ETF Meaning? CPSE stands for Central Public Sector Enterprises. An exchange traded fund (ETF) in this segment is CPSE ETF. It is basically an Index fund. CPSE ETF Full form is Central Public Sector Enterprises Exchange Traded Fund.

Govt. of India wanted to divest some of its holdings in CPSE and decided to divest such funds through ETF. It launched New Fund Offer through CPSE ETF in Mar 2014. It gave 5% upfront discount to invest in the NFO. Beyond this it offered loyalty addition of mutual fund units to the tune of 6.67% after 1 year.

Also Read: Top 15 Mutual Funds that has outperformed

Features of CPSE ETF FFO – Jan-2017


  • This FFO would open for subscription on 18th January, 2017.
  • This FFO would closes subscription on 20th January, 2017.
  • CPSE ETF FFO gets listed on 10th February, 2017 in BSE and NSE.
  • This is open ended scheme where one can invest even after it gets listed on stock exchange. However, they would not get special benefits offered during FFO.
  • This scheme is managed by Reliance Nippon Life Asset Management Limited.
  • Minimum investment is Rs 5,000 and in multiples of Rs 1 there off.
  • Benchmark is NIFTY CPSE Index
  • There is no entry load to invest in this mutual fund FFO.
  • There is no exit load to come out of this mutual fund FFO. There is no lock-in period to exit from this scheme.
  • Investors gets 5% discount.
  • Investor gets loyalty additions of mutual fund units after 1 year (if they continue).
  • This mutual fund scheme offers only Growth Option. There is no dividend option available.
  • Govt. of India planning to raise upto Rs 6,000 Crores through this CPSE ETF.

Where does CPSE Exchange Traded Fund (ETF) Invests?


CPSE ETF invests upto 95% in CPSE Index Stocks and upto 5% in Money Market Instruments (incl gold, cash etc.). This Fund aims to catch India growth story through basket of 10 Maharathna and Navarathna CPSE Stocks. These CPSE Stocks are currently available at attractive valuations.

The investment objective of the Scheme is to provide returns that, before expenses, closely correspond to the total returns of the Securities as represented by the Nifty CPSE Index, by investing in the Securities which are constituents of the Nifty CPSE Index in the same proportion as in the Index. However the performance of the Scheme may differ from that of underlying index due to tracking error. There can be no assurance or guarantee that the investment objective of the Scheme would be achieved.

How does the CPSE Tranche-I performing?


CPSE ETF Tranche-I was launched in Mar-2014 (2 years 9 months back) with Rs 20 NAV. It got very good response. The aim was to collect Rs 3,000 Crores, however investors subscribed for Rs 4,100 Crores. Balance Rs 1,100+ Crores were returned back to investors. Currently its NAV is Rs 26.83 indicating a overall returns of over 30%. This does not consider 5% discount to retail investors + loyalty additions of 6.67%. If we consider this, retail investor would have benefitted with over 41% in last 2 years 9 months.  CPSE ETF Portolio consists of Maharathnas and Navrathnas. Such CPSE ETF Portfolio has stocks like ONGC, Coal India, Indian Oil Corporation,  GAIL, PFC, Rural Electrification Corporation, Container Corporation, Bharat Electronics, Oil India and Engineers India.

Also Read: Ways to become Crorepati in 5 years

Why should you invest in CPSE ETF FFO – Jan-2017?


  • Good track record of CPSE Stocks helps you to grow your money
  • CPSE ETF First Tranche has given amazing returns.
  • Retail investor gets 5% discount on the “FFO Reference Market Price” of the underlying shares of Nifty CPSE Index shall be offered to FFO by GOI.
  • AMC may offer FFO loyalty units based on direction from Govt. of India. In CPSE ETF Tranche-I, they offered 1 unit for every 15 units held (6.67% of total value) after 1 year. However in current CPSE ETF of Tranche-II we do not know the value yet.
  • This CPSE ETF is fully compliance with RGESS (Rajiv Gandhi Equity Saving Scheme) where a first time investor can invest upto RS 50,000 in stock market and get income tax benefit.

Why should you not invest in CPSE ETF FFO – Jan-2017?


  • CPSE ETF Fund had amazing response from investors. However, the fund NAV after 3 months from NFO in Jun-2014 was Rs 26 and even today (after 2.5 years) the CPSE ETF fund NAV is at similar level. While the stock value has dropped in between and recovered in last 2.5 years, it gave nothing to investors in 2.5 years.
  • CPSE ETF invests in Maharastha and navrathna stocks where the major business decisions would happen based on approvals from Govt. of India. Business could be monopoly, however high growth cannot be expected in such companies.
  • ETF’s are very high risk as they invest in stocks indicated in specific Index funds. CPSE ETF invests in stocks of NIFTY CPSE ETF which are high risk.

How 5% discount is offered to investors?


It is not like a IPO where if 5% discount is offered, retail investors need to pay 5% less on the stock price. The composite index of CPSE ETF Index is formed and for every such composite price you would get 5% discount if you apply through FFO. E.g. the NAV considering CPSE ETF Stocks comes to Rs 20, you would get them at Rs 19 per unit. You would get allotment of Rs 5,000 or higher value which you may apply at this rate.

How to invest in CPSE ETF?


This is like buying any other stock or mutual fund. If you have mutual fund account / demat account, login to your account and check the NFO/FFO/IPO section and apply the same. If you are new investor and want to apply directly, visit Reliance AMC website, quickly complete KYC, fill the application and attach cheque and apply the same.

Also Read: Top 10 Best Investment Plans to get high returns

Should you invest in CPSE ETF FFO – Jan-2017?


CPSE ETF FFO offers basket of stocks that are monopoly, maharathna and navarathnas. Retail investors would get benefited with 5% discount. Beyond this, Govt. of India can announced FFO loyalty units if investors hold the units beyond 1 year. This is in compliance with RGESS. Considering CPSE ETF Tranche-I performance and all these positive factors, CPSE ETF FFO is a safe investment bet for retail investors. One can invest considering some of the risk factors indicated above.

If you enjoyed this article, share it with your friends and colleagues through Face book and Twitter.

Suresh

CPSE ETF FFO – Jan-2017 Review

25 comments

  • g soma shekar

    Hi Sir,

    i had an idea to start own business, few month back i started Trading that is with out knowladge but still i have confident i ll make money in share market . no one guideing me about that. for accout opening all executive calling me after opening no body ll teach. can u pls give sujjection to me.

    basically i stuydid kannada medium, day by day i am learning english. 

    in this message its there any mistkae pls . sorry .

    i hope u ll helping me. 

     

     

  • Hemant Bhatia.

    There is no Loyalty bonus in this issue. In all the meet Reliance guy has catogarically says this.

  • Kapil Banga

    CPSE ETF performance will primarily be dependent on two things. Firstly, the movement in coal and oil prices. Secondly, the movement of the PE of PSU stocks as these are highly undervalued because market discounts everything related to govt ownership..

    BTW, in your artcile you have mentioned loyalty units. But loyalty units were there in first tranche and are not there in this FFO..

     

    • kamal

      This heavy reliance on coal and oil sector makes me hesitant.  Those asset classes would have been already accounted for by more knowledgebale institutions.  So there is no undiscovered value there.  why would it gain !?

  • Amit

    Excellent articles exploring pros and cons of investing in this FFO. I like your balanced way of writing with just the right details one needs to make an informed decision. I always read your posts to decide whether to opt for an IPO or not. Excellent work.

Leave a Reply

Your email address will not be published. Required fields are marked *