What is CPSE ETF?

CPSE is   stands for Central Public Sector Enterprises. CPSE ETF is exchange traded index fund. It consist from 10 PSU companies stocks. CPSE index consist from Maharatnas, Navratnas and Miniratnas. These 10 constituents are ONGC(26.72%), GAIL(18.48%), Coal India(17.75%), REC Ltd(7.16%), Oil India Ltd(7.04%), Indian Oil Corporation(6.82%), PFC Ltd(6.49%), Container Corporation(6.40%), Bharat Electronics(2.0%) and Engineers India Ltd(1.13%). It is a part of government’s disinvestment program.

This idea has begun before 2 years back and now government has come with this CPSE ETF. The government has selected the Goldman Sachs Mutual Fund to manage CPSE ETF. Goldman has run gold ETF successfully which is listed in the name GOLDBEES in both NSE and BSE. The issue is open from 19^th March, 2014 to 21^st March, 2014.

Why invest?

It is clear that government want to sell stake in PSUs more as its proposed disinvestment program and want to reduce its fiscal deficit through it but before investing in this ETF NFO investors should consider all aspect of this issue.

It offers 5% upfront discount on reference market price. If investors hold it till one year, they will get 1 loyalty unit for each 15 units hold. These 10 companies are among the best companies from all available PSUs. These companies are available in very cheap rate now so current valuation also is attractive to purchase it. The expected dividends are also a main reason to purchase it.

Why not invest?

It is not good for short term investor as it is equity fund. So equity related risk is always there. It is new type of product which is not related any particular sector or theme. It seems that this ETF represent too many power and energy sector companies. Although the valuation is attractive at the current time but keep in mind the fact these PSU companies run by not competent promoter. Before invest in this ETF evaluate all possible pro and cons.

For more detail and any other query related investment, you can contact me through my email.

Warm regards,

Arvind Trivedi

Certified Financial Planner

arvind.trivedi79@gmail.com

www.artofinvest.com

www.arvindtrivedicfp.blogspot.in

Import gold duty hike and link gold ETF to gold lending

Good news for gold ETF investors

Increasing gold import bill and crude oil bill are the biggest cause of  worry to govt of India today. The government announced to raise duty on gold from 4% to 6% yesterday as the demand of gold is not reducing in our country and current account deficit is not coming down. To combat this situation the government has increased the duty on imported gold.

When we import the gold, our foreign reserve went out of the country. India has already imported gold worth 38 billion $ till third quarter of financial year 2012-13. This step is towards reducing demand and the improve the of forex reserves no.  

While it is still uncertain how much of an impact this 2% hike will make. Earlier such type of step we have already seenThe high price is driving the demand, and if the price goes any higher that will drive demand higher as well.

The other step is good news for ETF gold schemes investors. Apart gold duty hike, the other important announcement is linking gold ETF schemes to bank’s gold deposit schemes. When we buy a unit of a gold ETF, it represents about a gram of gold and the gold ETF sponsor buys and stores gold on your behalf with a custodian. This gold is lying idle and give no return at all.  The ETF’s gold will be linked to gold deposit schemes where gold merchant or jeweller can borrow the gold from banks and pay interest on this gold, and at a future date pay the money equivalent to the gold that they borrowed at the then prevailing price.

This will help reduce the import of gold to the extent that it is borrowed, but in the long term if the demand for gold doesn’t come down then it will not reduce imports, it will perhaps play a small role in delaying the imports but not make a long term impact on lowering gold imports or the current account deficit.

However, this would be good news for ETF owners because any interest or earning that the ETF earns out of lending gold will ultimately accrue to the owners and it would reflect in their schemes returns. The more details are still awaited, but if the lending starts, it would be good news for gold ETF investors.

Feel free to ask any queries related investment

Regards,

Arvind Trivedi

Certified Financial Planner

arvind.trivedi79@gmail.com