You can now join the PSU-listing party

As more PSUs head for a listing, there is an expansion of investment opportunities. Since initial public offerings offer a different kind of opportunity, almost the entire investor fraternity is keen to get a piece of this action.


Stock markets have been upbeat over government disinvestment in public sector companies ever since the UPA government returned to power without the support from the Left parties.

As more PSUs head for a listing, there is an expansion of investment opportunities. Since initial public offerings offer a different kind of opportunity, almost the entire investor fraternity is keen to get a piece of this action.

Sundaram BNP Paribas mutual fund seeks to offer an entry pass to this PSU party by launching the thematic offering — Sundaram BNP Paribas PSU Opportunities Fund.

The fund aims to capture the wealth creation opportunities over the long term presented by public sector undertakings (PSU) that account for almost 30 per cent of the market capitalisation on the National Stock Exchange.

The fund has identified wealth creation triggers in the form of disinvestment process, growth, valuation re-rating and high-dividend payouts.

The fund will invest at least 65 per cent of assets in the equity and equity-related securities of companies in the targeted theme. The fund manager can consider investing beyond the theme universe to the extent of 35 per cent of the assets.

At any given moment, the overseas investments are capped to the extent of 35 per cent of the assets. Of course, such securities must be a part of the target theme. Funds can seek investments in debt and other fixed income instruments to the extent of 35 per cent of the total assets. CNX PSE Index is the benchmark for the scheme.

According to Sundaram, PSUs trade at a discount of about 25 per cent to the broad market, and 40% discount to the private sector. “If there is a 50 per cent re-rating of PE multiples, potential increase in value of listed PSUs could increase by about $58 billion,” the fund says citing reasons to invest.

But there is a flip side to investing in public sector companies as well. The risk factors highlight the fact that investments will be affected by the government policies on PSU, which have been rather vague. As a thematic fund, there will be concentration risk compared to a diversified fund.

The income-tax concessions for the capital gains arising from the transfer of the units of the scheme as well as for the dividend distribution tax at the scheme level are contingent upon the scheme qualifying as an equity-oriented fund under the Income Tax Act, by investing more than 65 per cent of the corpus of the scheme in equities of Indian companies.

The fund units are available at par with a minimum investment of Rs 5,000. Post the new fund offer, for a monthly systematic investment plan (SIP), one has to contribute minimum Rs 250. Those who exit the fund before completion of 12 months from the date of allotment of units, have to pay an exit load of one per cent.