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Govt to use CPSE ETF for further divestment in constituent companies

The Central Public Sector Enterprises Exchange Traded Fund (CPSE ETF) which was successfully listed on the exchanges at the beginning of this fiscal year, will be used by the Finance Ministry to further divest the government’s stake in the constituent state-owned companies, Business Standard has learnt.

The ETF, which is managed by Goldman Sachs asset management raised around Rs 4,000 crore for the government. However, since it is a close-ended fund with a limit of Rs 3,000 crore, the remaining Rs 1,000 crore was returned to investors. The constituent PSUs in the fund are Coal India, ONGC, Gail, Rural Electrification Corp, Power Finance Corp, Container Corp of India, Indian Oil, Oil India, Bharat Electronics and Engineers India.

The largest constituents are ONGC, (with a 23.62 per cent weightage), Coal India (17.18 per cent), and Gail, (16.81 per cent). The other companies which form a part of the ETF range between 8.5 to 1 per cent in terms of weightage.

“The government will use the ETF to divest further stake in the companies which form a part of it,” said a senior government official who did not wish to be named. The person, however, added that no plans to increase the number of constituents or to launch a new CPSE ETF had been firmed up yet.

Officials say that while the larger stake sales of the constituents may not happen through the ETF, smaller divestments in terms of stake or the value of the shares being divested may happen through this platform.

An ETF is a security that tracks an index, a commodity or a basket of assets like an index fund, but trades like a stock on an exchange. Its biggest advantage is that it provides diversification to an investor and is cheaper than investing in a fund. The brokerage fees will be same as that for trading in an individual stock. An open-ended ETF has no upper investment limit, while a closed-ended ETF does.

Listed on April 4, 2014, the CPSE ETF reached a 52-week high of Rs 27.95 per unit on April 9. It closed at Rs 24.32 per unit on Tuesday.

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