Budget 2017: diversified CPSE ETF coming soon; will it be worth the wait?

A more diversified CPSE ETF should provide plenty of wealth creation and value unlocking opportunities for retail investors, experts  by the response to the recent Central Public Sector Enterprises Exchange Traded Fund (CPSE ETF ) offering, Finance Minister Arun Jaitley, in his 2017 Budget speech, announced the launch of a more diversified public sector ETF in the next financial year. “Our ETF, comprising shares of ten CPSEs, has received overwhelming response in the recent Further Fund Offering (FFO). We will continue to use ETF as a vehicle for further disinvestment of shares. Accordingly, a new ETF with diversified CPSE stocks and other Government holdings will be launched in 2017-18,” Jaitley said in the Budget 2017-18 speech. But will a new CPSE ETF be worth the wait?

Investment experts feel the fund could come as a good investment option for the public. “A more diversified CPSE ETF should provide plenty of wealth creation and value unlocking opportunities for retail investors. However, the final decision on timing and quantum should be a function of the investor's over all asset allocation,” Ajit Narasimhan, Category Head - Savings and Investments. The recent CPSE ETF offer in January had attracted bids worth Rs 13,802 crore against the issue size of Rs 6,000 crore. The Further Fund Offer (FFO) had a size of Rs 4,500 crore with a green shoes  option of Rs 1,500 crore in case of oversubscription. A 5-percent discount was offered to retail investors. Anuraag Saboo, co-founder & CEO, Gumption Labs, which offers personal finance advisory, said the proposed new CPSE ETF would be beneficial and could spur the ETF market as a competing option to mutual funds. “The Government is clearly very enthused by response to this year CPSE ETFs. 

The launch of the diversified public sector ETFs in the coming year could drive ETFs as a new competing investing option for people instead of mutual funds. ETFs are attractive since their cost of management is much lower than most mutual funds," Sahoo said. Dhaval Kapadia, Director Portfolio Specialist, Morning star Investment Adviser India, says ETFs are convenient investment option since they can be traded on stock exchanges. “The performance of an ETF is similar to the index is tracked, subject to tracking error and the net expense ratio of the ETF. Buying a unit of ETF means investing in the stocks or assets, in the same proportion, as is in the index it is tracking. They have a lower cost structure as compared to an actively managed portfolio. Since, they are in dematerialised form it is easy to buy or sell on an exchange, at the prevailing market price,” Kapadia said. The initial offer of the CPSE ETF came out in March 2014 and has given a healthy CAGR return (including bonus and discount) of around 18 percent since. The ETF consisted of 10 large PSEs 

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