CPSE ETFs an alternative for retail investors

Currently, an ELSS offers investors a tax deduction of up to Rs 1.5 lakh under Section 80C and comes with a lock-in period of three years.

Published: 05th August 2019 07:59 AM  |   Last Updated: 05th August 2019 07:59 AM   |  A+A-

ETF

For representational purposes

By Express News Service

NEW DELHI: THE Central Public Sector Enterprises Exchange-Traded Fund’s (CPSE ETF) Further Fund Offer (FFO) can be a very good alternative for retail investors as the government has allowed them to invest in the sixth tranche of CPSE ETF last month.

According to HDFC securities, “Discount, dividend yield and low P/E (price/earning ratio) are the main carrots in CPSE FFO5. Investors could look to encash these benefits in the first three to six months of allotment, provided the markets and the PSU sector are conducive for profit-taking”.

The government had allowed retail investors to participate in the ETF offering by investing a minimum of Rs 5,000 and in multiples of Rs 1 thereafter. For non-institutional investors, the minimum investment amount was Rs 2 lakh.

Also, experts claim that for the first-time investors, the scheme has many benefits, if they stay. “First-time investors or investors looking to create wealth through equities as an asset class over the long term, are better off with diversified equity mutual fund schemes,” says Amol Joshi, founder, Plan Rupee. The ETF will have an expense ratio of less than 1 paisa, while actively-managed equity mutual fund schemes have expense as high as 2 per cent.

If one compares returns, the two public-sector ETFs have done better over the past year, but the Equity-Linked Savings Schemes (ELSS) category has done better over the trailing three and five years.
The government had already announced its plans to offer an investment option in ETFs on the lines of ELSS, experts claim that this move will draw many retail investors.

Currently, an ELSS offers investors a tax deduction of up to Rs 1.5 lakh under Section 80C and comes with a lock-in period of three years.

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