The Central Public Sector Enterprises (CPSE) ETF

Almost two years after it was first mooted, the specialised exchange-traded fund (ETF) for public sector stocks is finally getting off the ground. The government has selected Goldman Sachs Mutual Fund to run this fund, which will be called the Central Public Sector Enterprises (CPSE) ETF. ETFs are generally based on an equity index and replicate that index in their portfolio so that investors can invest in it easily.

The CPSE fund’s underlying index is a new index of the same name that the National Stock Exchange launched last week. The index has 10 stocks as its components — Coal India, GAIL, ONGC, Indian Oil, Bharat Electronics, Oil India, PFC, REC, Container Corp and Engineers India. While ETFs are mutual funds, they are bought and sold on stock exchanges .An investor who wants to invest in this basket of public sector stocks can buy this ETF instead.

For the government, the CPSE ETF essentially offers an on-demand, instant divestment route that is always open. This is the solution to a different problem that was talked about when such a fund was first mooted a couple of years back. At the time, the idea was that a PSU ETF could be used to bundle less-desirable PSU stocks with more saleable ones, sort of like what your provisions store does to get rid of hard-to-sell items. That idea was clearly unworkable. By contrast, the new ETF consists entirely of what may be called investible PSUs. Read more of this post