Bharat-22 ETF Follow-on Fund Offer (FFO) – Should you invest?

Bharat-22 ETF Follow-on Fund Offer (FFO) - Should you invest-minBharat-22 ETF Follow-on Fund Offer (FFO) – Should you invest?

After 7 months, Bharat-22 ETF Follow-on Fund Offer (FFO) Tranche-II would be launched next week. For Retail investors, Bharat 22 ETF FFO would open for subscription on 20th June, 2018. Bharat-22 Exchange Traded Fund (ETF) consists of 22 blue chip stocks including public sector companies where Govt of India has a minority stake. The Bharat 22 ETF is the second ETF from Govt. of India after CPSE ETF. What is a Bharat 22’ ETF? What stocks are part of this ETF? How to subscribe to Bharat-22 ETF FFO Index? Should you invest in FFO of Bharat-22 or not?

Also Read: Top 15 SIP Mutual Funds to invest in 2018

What is an Exchange Traded Fund (ETF)?

In simple terms, an ETF is an exchange-traded fund (ETF) which is comprised of specific stocks.  If stock prices go up or down, ETF NAV would also fluctuate. It simply reflects the underlying stocks of the ETF.

What is a Bharat-22 ETF Index?

Bharat 22 ETF was launched in November, 2017 as part of Govt of India Disinvestment plan last year.

Bharat-22 ETF is where 22 public sector companies are part of this Index. ICICI Pru AMC is the ETF Manager for Bharat 22 ETF Index. Govt of India is planning to disinvest, for over Rs 80,000 Crores this year 2018-2019. Bharat 22 ETF Follow-on Fund Offer (FFO) is being launched now as part of the FY2018-2019 Disinvestment plan.

Features of Bharat 22 ETF FFO / IPO

Bharat 22 ETF FFO would open for subscription on 19th June for Anchor Investors.

For Retail investors, Bharat-22 ETF FFO would open for subscription on 20th June, 2018 and closes on 22nd June, 2018.

Bharat-22 ETF Index consists of a diversified portfolio of 22 Blue Chip Stocks.

Govt of India is issuing this Tranche-II to get Rs 6,000 Crores with an option to retain additional Rs 2,400 Crores in Green Shoe option.

This ETF consists of state owned companies like ONGC, IOC, SBI etc.

This ETF also consists of companies where Govt of India includes partial stakes like Axis Bank, ITC, Larsen and Toubro etc.,

This ETF also consists of blue chip stocks owned by Govt. India through its holdings through Specified Undertakings of the Unit Trust of India (SUUTI).

Current Bharat-22 ETF NAV is Rs 35 per unit.

This ETF NAV would go up or down based on the share prices of 22 underlying stocks under this ETF.

Who is managing the Bharat-22 ETF?

Last year, Ministry of Finance has appointed ICICI Prudential AMC as ETF Manager for this fund.

What sectors are part of this Bharat-22 ETF Portfolio?

Bharat-22 ETF consists of Energy, Financial Sector, FMGC Sector, Industrial segment and Utilities segment.

Which stocks do Bharat 22 ETF Portfolio contain?

Bharat ETF would span across 6 sectors and consists of 22 stocks. This ETF cannot invest more than 20% in a single sector. Also, this ETF cannot invest more than 15% in one particular stock. Top 10 holdings under Bharat 22 ETF stocks are given here along with current Assets size.

Basic Materials Segment

1) National Aluminium Co Ltd  (NALCO) – 5.5

Energy Segment

2) Oil & Natural Gas Corp Ltd (energy) – 6%

3) Coal India Ltd (energy) – 4.5%

Banking and Financial Segment

4) State Bank of India (finance) – 8.8%

5) Axis Bank Ltd (finance) – 8.7%

FMCG Segment

6) ITC Ltd (FMCG) – 15%

Industrial Segment

7) Larsen & Toubro Ltd (Industrials) – 15%

Utilities Segment

8) Power Grid Corp of India Ltd (utilities) – 6.9%

9) NTPC Ltd (utilities) – 7.7%

10) Gail India Ltd (utilities) – 4.5%

Reasons to invest in Bharat-22 ETF FFO

Bharat 22 ETF stocks consists of 22 public sector companies where Govt of India has minority of the stake. This is a good investment plan if someone wants to invest in high future growth potential companies. This scheme provides greater diversity of investments.

All retail Investors would get a 2.5 % discount on the NAV.

You may like: List of Income Tax Deductions for 2018-2019

Reasons not to invest in a Bharat-22 ETF Follow-on Fund Offer

Bharat 22 ETF which was launched in November 2017 ad currently trading at 5% loss than the issue price.

BHARAT 22 ETF is only the name of the Scheme and does not in any manner indicate either the quality of the Scheme or its future prospects and returns.

As the price/value/interest rates of the securities in which the Scheme invests fluctuate, the value of your investments in the Scheme may go up or down.

BHARAT 22 ETF is an Exchange Traded Fund (ETF). There can be no assurance that an active secondary market will develop or be maintained.

Mutual Funds and securities investments are subject to market risks and there is no assurance or guarantee that the objectives of the Scheme will be achieved.

The NAV of the Scheme may be affected by changes in the general level of interest rates and trading volumes.

The NAV of the Scheme may be affected by settlement periods and transfer procedures.

In the event of receipt of inordinately large number of redemption requests or of a restructuring of the Scheme‟s portfolios, there may be delays in the redemption of Units.

The Liquidity of the Scheme‟s investments is inherently restricted by trading volumes.

Investors in the Scheme are not being offered any guaranteed returns.

Mutual funds being vehicles of securities investments are subject to market and other risks and there can be no guarantee against loss resulting from investing in the Scheme. The various factors which impact the value of the Scheme‟s investments include, but are not limited to, fluctuations in interest rates, prevailing political and economic environment, changes in government policy, factors specific to the issuer of the securities, tax laws, the liquidity of the underlying instruments, settlement periods, trading volumes etc.

The past performance of the mutual funds managed by the Sponsors and their affiliates/associates is not indicative of the future performance of the Scheme.

Investment decisions made by the AMC may not always be profitable.

From time to time and subject to the Regulations, the Sponsors, the Mutual Funds and investment companies managed by them, their affiliates, their associate companies, subsidiaries of the Sponsors, and the AMC may invest either directly or indirectly in any or all the Schemes. The funds managed by these affiliates, associates, the Sponsors, subsidiaries of the Sponsors and /or the AMC may acquire a substantial portion of the Scheme‟s Units and collectively constitute a major investor in the Scheme. Accordingly, redemption of Units held by such funds, affiliates/associates and Sponsors might have an adverse impact on the Units of the Scheme because the timing of such redemption may impact the ability of other Unit holders to redeem their Units.

Further, as per the Regulation, in case the AMC invests in any of the Schemes managed by it, it shall not be entitled to charge any fees on such investments.

How to subscribe to Bharat-22 ETF FFO?

If you have a demat / mutual fund account, you can visit IPO/FFO section of your account and locate Bharat ETF FFO link. You can select the same and indicate the amount and submit the same.

What's experts view on this ETF FFO?

HDFC Securities, Retail Research Head, Mr Deepak Jasani says “This is a defensive way for investors to participate in the PSU rally. It is a good opportunity for investors who believe PSUs will do well under the new government, with a 6- 12 month view”.

Mr.Rupes Bhansali, Head of Distribution from GEPL Capital comments that “Many PSUs have increased their dividend paid to investors. This will make this ETF a safe bet for defensive investors with a long term view”.

Also Read: RITES Miniratna IPO – Should you subscribe?

Should you invest in a Bharat-22 ETF FFO in June 2018?

Bharat 22 ETF Index has not performed well in the last 6-7 months after
Tranche-I was launched. This is not for short term investment. If you are willing to take high risk and looking for good returns in the long run by investing in a diversified portfolio of PSU companies, one can consider investing in Bharat 22 ETF Follow-on Fund Offer. Alternatively, you can invest in diversified equity mutual funds which are the best options.

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Bharat-22 ETF FFO – Should you invest

Suresh KP


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