Reliance CPSE ETF Review




I got few emails & messages from clients – asking my view on Reliance CPSE ETF. Also got a request from Business Today Magazine – their post with my quotes is published here – LINK.

Then I decided to write a short note… here you go…

Reliance CPSE ETF Review

Image courtesy of Sujin Jetkasettakorn at FreeDigitalPhotos.net

What is CPSE ETF?

The Central Public Sector Enterprises (CPSE) ETF is based on the CPSE index. It is managed by Reliance Mutual Fund.

SCHEME BACKGROUND

As part of its disinvestment programme, the Government of India (“GOI”), through its Cabinet Committee on Economic Affairs (“CCEA”) on May 2, 2013 approved the setting up of a central public sector enterprise exchange-traded fund (“ETF”) comprising equity shares of central public sector enterprises (“CPSE”), which would be launched as a CPSE ETF mutual fund scheme.

Investment Objective

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.

Read – What is nifty and sensex – how they are calculated.

Performance of CPSE ETF

Reliance CPSE ETF Performance

Performance numbers also includes Dividend Reinvestment.

Sector Exposure – Reliance CPSE ETF

Sectors in CPSE ETF Reliance

Top 10 Stocks in CPSE ETF

stocks cpse etf Above information is picked from Reliance Mutual Funds Site.

Must Read Everything that you want to know about ETF

Should one invest in CPSE ETF?

The first tranche of CPSE ETF launched in March 2014 and its performance has been impressive. Investors got some discount and long-term retail investors (holding of more than 1 year) got additional loyalty units. This time too, there will be 5% discount and loyalty units. {Discounts should not be considered as the reason to invest – equity markets are highly volatile & discount can’t be considered as substantial cushion}

The companies that comprise the index include 10 Maharatna and Navratna companies. These companies have steady cash flows and a good dividend track record.

The previous issue has outperformed the benchmark and the expense ratio is expected to be 0.065% in the new issue.

There are some risks too. It is a thematic ETF.  Thematic funds are more risky compared to diversified funds. The earlier issue did well as there was a fall in crude oil prices and there was government oil price deregulation. The fund has companies that are all commodity based and skewed towards energy, oil and gas. There is a lot of government involvement in major business decisions for these companies which can go either way.

If you want to invest in these sectors and are okay with the risk involved, you can invest in it to have it as a minor part in your portfolio. It makes sense to hold it for a very long-term to get over cyclical phases to get the full benefits.

Who should invest in CPSE ETF?

If you do not have investments in the energy, oil/gas sectors, you can allocate some of your funds in CPSE ETF. If you have investments in diversified funds, as such there is no need to take exposure in this or you can invest a small sum in CPSE ETF – just to take the taste.

If you are aware of the risks involved with investing in a thematic fund that will be influenced by the government and can accept the risks, you can invest a small sum in it.

It is compliant with the RGESS. So if you are a first-time investor in the stock market, you can invest up to Rs. 50,000 and get income tax benefit.

It has given good returns to the investors in the First tranche – including dividends. But past performance has no meaning in mutual fund world.

How much should be invested in CPSE ETF?

The CPSE ETF is a thematic fund which has too much focus on energy, oil and gas companies. Major decisions of the companies that comprise the index will be influenced by the government. You can invest a minor portion of your portfolio in the CPSE ETF (5-10% of equity investments) provided you understand the risks that go with a thematic fund and commodity based stocks and do not have over exposure to PSUs and the energy sector.

Will I invest? 🙂

Must watch this 1 min video – if you are an equity investor…

Please feel free to share your views in the comment section. 

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{ 1 comment… add one }
  • Anil January 23, 2017, 8:05 PM

    There were no loyalty units this time.

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