5 smart things to know about disinvestment

1. In most contexts, disinvestment refers to the government selling a government owned enterprise either partly or fully.

2. The main objectives are to reduce the financial burden on the government due to inefficient PSUs and to improve public finances. It introduces competition and market discipline and helps to depoliticise non-essential services.

3. The equity allocation provides long-term growth and the debt exposure reduces the volatility of the returns thus offering the benefits of asset allocation in a single product.

4. The fund manager manages the allocation to equity and debt in a dynamic manner and so the investor does not need to keep track of the asset allocation of the fund and does not have to carry out the rebalancing at his end.

5. Complete privatisation is a form of majority disinvestment wherein 100% control of the company is passed on to a buyer.

(The content on this page is courtesy Centre for Investment Education and Learning (CIEL). Contributions by Girija Gadre, Arti Bhargava and Labdhi Mehta.)