All you need to know about Bharat 22 ETF

Illustration: Ajay Mohanty
The 'Bharat 22' Exchange Traded Fund (ETF) is all set to open for anchor investors on November 14, while subscription for retail investors would begin from November 15 and continue till November 17.


The ETF is expected to mop up over Rs 8,000 crore for the government, helping the government meet its ambitious Rs 72,500 crore disinvestment target for the current fiscal.


The ETF will invest in 22 stocks from CPSE, SUUTI and PSU Banks listed on BSE of which 19 will be public sector companies.


The first CPSE (Central Public Sector Enterprises) ETF, which was launched in March 2014 consisted of scrips of 10 PSUs - ONGC, Coal India, IOC, GAIL (India), Oil India, PFC, Bharat Electronics, REC, Engineers India and Container Corporation of India. The government has raised Rs 8,500 Cr through CPSE ETF route last fiscal.


All you need know about the ETF:


1. 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. It provides diversification to investors and is cheaper than investing in a fund. Most ETFs track to a particular index and therefore have lower operating expenses than actively invested mutual funds. Thus, ETFs may improve your rate of return on investments. In addition, ETFs have no investment minimums or sales loads, unlike traditional mutual funds, which often have both.


2. As part of the NFO, an upfront discount of 3% would be offered to all categories of investors. The expense ratio of BHARAT 22 ETF is up to 0.0095% for three years from listing of units of Bharat 22 ETF. Investors who hold a demat account can apply for units of the ETF during the NFO.


3. The state-owned companies or Public Sector Units (PSUs) that are part of CPSE as well as the Bharat-22  ETF include ONGC, IOC, BPCL, Coal India, Gail Bharat Electronics, REC, PFC, and Engineers India. The other central public sector entities on the list are, Engineers India, NBCC, NTPC, NHPC, SJVNL, GAIL, Power Grid, and NLC India.


4. Unlike the CPSE ETF, the holdings are not entirely PSUs. But, includes the government’s strategic holding in Axis Bank, ITC, and L&T held through the Specified Undertaking of Unit Trust of India (SUUTI). 


5. Only three public sector banks -- SBI, Indian Bank and Bank of Baroda -- figure in the Bharat-22 index. 


6. Bharat 22 is a well-diversified ETF spanning six sectors — basic materials (4.4%), energy (17.5%), finance (20.3%), industrials (22.6%), FMCG (15.2%) and utilities (20%).  The weightage of each individual stock in the Index is capped at 15% and each sector in the Index is capped at 20%. 


7. The Bharat 22 Index will be rebalanced annually in March. The index is managed by Asia Index Private Limited and the ICICI Prudential Asset Management Company (AMC) will be the ETF Manager.


8. Taxation for this ETF will be like that of equity shares or equity mutual funds. AS per the prevalent tax laws, capital gains arising from investments held up to one year will be classified as STCG and will be taxed at 15%, plus surcharge and cess as applicable. LTCG will be tax exempt. 

Should you invest

According to analysts, Bharat 22 ETF seems like a good bet. "If fund managers of long-term term savings funds prefer ETFs, there is no reason for individuals to stay away. The composition of Bharat 22 ETF is such that only large cap, dividend paying companies are available. There is a good chance that the government could offer a discount to retail investors like it did during the new fund offer and follow-on offer of CPSE ETF. For those wary about directly buying shares or looking to make their first stock market transaction, Bharat 22 ETF could be the way to go," Mayuresh Joshi, Fund Manager at Angel Broking said in an earlier article. READ THE FULL ARTICLE HERE

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