Investors in CPSE ETF to get one unit free for every 15 held

MUMBAI: Investors holding units of the Exchange Traded Fund (ETF) consisting of top state-owned companies will receive bonus units by the end of this month as the scheme completes one year. The government had offered one unit free for every 15 held by retail investors, who subscribed to the new fund offer of the Central Public Sector Enterprises (CPSE) ETF in March 2014 and have stayed invested for a year.

Financial advisors, however, recommend booking profits after receiving the units on the grounds that the fund, operated by Goldman Sachs Asset Management, may not repeat the performance seen in the last one year.

Since March 28, 2014, when the units were allotted, investors have seen a 40 per cent return, outperforming the Nifty’s 32 per cent.

"Retail investors should take their loyalty units and exit the fund," says Manoj Nagpal, CEO, Outlook Asia Capital. "Exiting after a year also gives investors the benefit of long-term capital gains tax."

Retail investors, who got the units at a 5 per cent discount to the issue price, were allotted the units at Rs 17.45 a piece. Post elections in early June, the fund’s net asset value (NAV) hit a high of Rs 27.38, a gain of 57 per cent, as investors believed efficiency of public sector companies would improve under the new government. However, since then, the NAV drifted lower and has remained range-bound in the current range of Rs 24-25.

Wealth managers are uncomfortable with the constitution of the ETF with three stocks Coal India, ONGC and GAIL accounting for almost 60 per cent of the fund’s weightage. The other stocks are Container Corporation, REC, PFC and IOC among others. Vishal Dhawan, chief financial planner, Plan Ahead Wealth Advisors, says given the low earnings visibility and no flexibility to change the constitution of an ETF portfolio, investors can book profit and move to a portfolio of better managed stocks or funds.