The Finance Minister Nirmala Sitharaman announced in her maiden speech on the Union Budget that the government will launch its Central Public Sector Enterprises (CPSE) exchange-traded fund (ETF) in a tax-saving mutual fund scheme format.
Popularly referred to an equity-linked saving scheme (ELSS), investments in these schemes are given deduction under section 80C for investments up Rs 1,50,000. These schemes come with a three-year lock-in.
So far there is no lock-in CPSE ETFs. However, the government is to provide the contours of this scheme.
Presently, only mutual fund schemes offer ELSS schemes. Now, for the first time in India, even an ETF will come in an ELSS format.
The CPSE ETF is an initiative by the government of India to divest its shareholding in 11 bluechip PSUs — ONGC, NTPC, Coal India, IOC, REC, PFC, Bharat Electronics, Oil India, NBCC, NLC India and SJVN.
In the last one year, the CPSE ETF has delivered a return of 11.69 percent, while in the last three years, the scheme delivered 9.19 percent.
Currently, CPSE ETF is managed by Reliance Nippon Asset Management. In March 2014, the government had launched the CPSE ETF wherein the government has so far offloaded stake in 10 PSU companies garnering Rs 38,500 crore.
Mutual fund experts also said that this category will help attract more retail investors.
The advantage for retail investors for the ETF format of MF savings are manifold. It's very low cost being passive ETF annual expense at a maximum 1 percent, as compared to an average of 2 percent in regular active managed ELSS equity.
Over a three year horizon, the Nifty has always moved up. This can be seen from January 2015 to January 2018 and from January 2016 to January 2019. Thus, one could assume a shadow assurance of returns.
Being ETF, there is also no risk of underperformance by a fund manager.
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