The government on Tuesday mopped up about Rs850 crore from six anchor investors, including the Life Insurance Corporation of India (LIC), in a new fund offer (NFO) scheme to anchor investors (investing a minimum of Rs10 crore) in the Rs3,000-crore central public sector enterprises (CPSE) exchange-traded fund (ETF).
The CPSE ETF basket consist of shares of 10 PSUs and provides an opportunity for investors to invest in Oil & Natural Gas Corp, GAIL India, Coal India, Indian Oil, Oil India, Power Finance Corp, Rural Electrification Corp, Container Corp, Engineers India and Bharat Electronics.
The fund is managed by Goldman Sachs and will be listed on the stock exchanges in the form of an ETF.
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.
A successful subscription of the ETF would help the government raise Rs3,000 crore more through PSU stake sale. The government has raised about Rs13,119 crore from disinvestment so far in this financial year and the ETF would help the government meet the revised disinvestment target of Rs16,027 crore.
In the interim budget for 2014-15, the government had lowered the PSU stake sale target from Rs40,000 crore to Rs16,027 crore.
The NFO for anchor investors will close for subscription on Friday and the open-ended scheme will open for subscription by the public on 11 April.
Retail investors will be offered a 5 per cent discount on the NFO. These investors would get one loyalty unit for every 15 units they hold if they stay invested in the ETF for a year after allotment.
The allotment price and discount of 5 per cent for retail investors would be based on 'reference market price', which means the average of full-day volume-weighted average price during the non-anchor NFO period for each of the index constituents.
The price of the ETF unit will be based on one-hundredth of the CPSE index after adjusting discounts. It means that if the underlying index value is 1,898.10 on the listing day, then the ETF price will be Rs18.50 per unit.
While qualified institutional buyers (QIBs) will be required to invest at least Rs2,00,001 in the ETF, retail investors can invest a minimum of Rs5,000 and a maximum of Rs2,00,000.
The ETF will offer tax benefits under Rajiv Gandhi Equity Saving Scheme (RGESS) and there will not be any entry or exit load.
''Though ETF is a very popular investment vehicle globally, it is at a nascent stage in India. Also, equity ETFs are yet to gain traction here. Through the CPSE-ETF, the government is trying to make this product popular," Alok Tandon, joint secretary in the department of disinvestment said.
The CPSEs under the index have more than 55 per cent government holding under the promoter category and an average free-float market capitalisation of more than Rs1,000 crore for the six months ended June 2013.