CPSE ETF FFO 3 – Nov 2018 – Should you invest or Avoid?

CPSE ETF FFO 3 – Nov 2018 Review


As part of divestment strategy, Govt. of India is planning to launch CPSE ETF FFO 3 now. Reliance Mutual Fund CPSE Exchange Traded Fund FFO 3 would open from 27th November to 30th November, 2018. This would be 4th Tranche of the CPSE ETF. With this FFO 3, Govt. of India aims to get Rs 8,000 Crores. What is CPSE ETF? What are the detail of Reliance Mutual Funds CPSE ETF FFO 3 – Nov-2018? How CPSE ETF has performed since inception? Should you invest in Reliance MF CPSE ETF FFO-3 when stock markets are volatile?

Also Read: Best Mutual Funds in India from Largecap/Midcap Segment

What is CPSE Exchange Traded Fund (ETF)?


If you are familiar, skip this section.

Central Public Sector Enterprises (CPSE) Exchange Traded Fund (ETF) constructed in order to facilitate the Government of India’s initiative to disinvest some of its stake in selected CPSEs. The government opted for the ETF route as one of the methods for disinvestment. The ETF shall track the performance of the Nifty CPSE Index. The index values are to be calculated on free float market capitalization methodology. The index has a base date of 01-Jan-2009 and base value of 1000. Weights of index constituent shall be re-aligned (i.e. Capped at 20%) on a quarterly basis, after the expiry of F&O contracts in February, May, August and November.

Issue detail of Reliance Mutual Funds CPSE ETF FFO 3 – Nov-2018


Here are the CPSE ETF Features of current issue.

1) CPSE ETF FFO 3 would open for subscription to anchor investors on 27th November, 2018 only for 1 day.

2) CPSE ETF would open for other investors (Including Retail investors) from 28th November, 2018 and closes on 30th November, 2018

3) With this ETF, Govt. Of India aims to get Rs 8,000 Crores with an option to retain another Rs 4,000 Crores to Rs 6,000 Crores through green shoe option.

4) Minimum subscription is Rs 5,000 and in multiples of Rs 1 there-of.

5) All investors would get 4.5% upfront discount on the issue price. Earlier CPSE ETF of Mar 2017 had 3.5% discount which is now increased to 4.5%. NAV would be announced before the issue opens.

6) Entry load is NIL.

7) Exit load is NIL.

8) Maximum cap per stock is reduced from 25% to 20% in this CPSE ETF.

9) CPSE ETF NAV is Rs 24.93 as on 21st November, 2018.

10) This ETF would get listed on stock exchanges. CPSE ETF Listing date would be announced as soon as the subscription is over

11) ICICI Securities is the lead advisor to the issue.

12) Complete features can be read on SEBI Website here. 

What does CPSE ETF Portfolio consist of?


Earlier CPSE ETF Portfolio had 10 stocks. However, due to disinvestment program completed, Govt of India has removed certain stocks and added new stocks in this ETF.

4 Additions in CPSE ETF Stocks list:  NTPC, NLC, SJVN and NBCC from power and construction sectors.

3 Reductions in CPSE ETF stock list:  GAIL, CCI and Engineers India

Current CPSE ETF Portfolio consists of 11 stocks now.

1) NTPC Ltd – Power

2) Coal India Ltd –  Minerals/Mining

3) Indian Oil Corporation Ltd – Petroleum Products

4) ONGC – Oil

5) REC Ltd – Finance

6) Power Finance Corporation Ltd – Finance

7) Bharat Electronics Ltd – Capital Goods

8) Oil India Ltd – Oil

9) NBCC (India) Ltd – Construction

10) NLC INDIA Ltd – Power

11) SJVN Ltd – Power

Why to invest in CPSE ETF FFO 3?


1) Good for long term investors as CPSE ETF is under-valued.

2) This portfolio has a dividend yield of 5.25% as on 31st October, 2018 which is good.

3) CPSE ETF FFO 3 comes with 4.5% discount. Means you can subscribe to this and if markets are stable, you can sell and get 3.5% profits on the listing day.

4) CPSE ETF has a low expense ratio of 0.95 bps.

Risk Factors of investing in CPSE ETF FFO 3 – Nov 2018


1) Stock markets are volatile now. Any market correction would lead to erosion of NAV and your investment value would get reduced in future.

2) This ETF Scheme concentrates in certain sectors, hence it is high risk.

3) This scheme invests in equity, which would be volatile every day.

4) The NAV of the Scheme will react to the securities market movements. Hence profits appearing today may vanish tomorrow based on market movements.

5) Although the Units of the Scheme are listed on NSE and BSE, there can be no assurance that an active secondary market will develop. Hence there would be a time when trading in the Units of the Scheme would be infrequent or halted.

6) The equity markets and Derivative markets are volatile and the value of Securities, Derivative contracts and other instruments correlated with the equity markets may fluctuate dramatically from day to day. This volatility may cause the value of investment in the Scheme to decrease.

7) The returns from the Securities comprising the Nifty CPSE Index may under perform returns of general Securities markets.

8) The Scheme is not actively managed. Since the Scheme is linked to an index, it may be affected by a general decline in the Indian markets relating to its underlying index. The AMC does not attempt to individually select stocks or to take defensive positions in declining markets.

How is CPSE Exchange Traded Fund has performed in the last 3 years?


Here is how the ETF has performed in the last 1-3 years.

1) CPSE ETF has given 6.3% annualized returns in the last 3 years. NIFTY has given 11.2% annualized returns during the similar period.

2) CPSE ETF has given 15% negative returns in the last 1 year. NIFTY has given 5.6% annualized returns.

3) CPSE ETF has given 18% since inception.

Considering these factors, CPSE ETF has been under performing all along.

Also Read: Best Performing Small Cap Mutual Fund Schemes

Should you invest in CPSE ETF FFO 3 Nov 2018?


CPSE ETF has been under performing since inception. This ETF is not giving returns even what bank FDs are giving. Investors have been waiting to under lock the value of CPSE ETF which did not happen in the last 3 years. Top 4 holdings contribute to 80% of the ETF value which are driving the NAV of this fund. Many experts are saying that forget about short term, this is not even a long term bet. I feel one should safely ignore this ETF at this point of time. Alternatively, you can invest in some of the large cap mutual fund schemes that can give better returns.

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Suresh

CPSE ETF FFO 3 – Should you invest or Avoid

5 comments

  • Ranganatha

    What is fund managers charges & When & how they will collect ?

  • Dr. Yousuf

    Is is worthwhile purchasing it now and selling it on listing day? For the 4.5 percent profit?

    • Hello Dr. Yousuf, If stock markets are stable or raising, it is possible to get this 4.5% profit. we can’t predict how market would be on listing day

      • Dr.jnardan panday

        I do agree with your view market is unpredictable however since the shares of the contributing companies are down from 2 -3 days and looking after the over subscription of anchor investors and 4.5% discount to non anchor it seems good but confusing scenario as the previous strenches not performed and wealth stands reduced to long term investors.

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