Government looking to raise Rs 10,000 crore through follow-on offer on Bharat-22 ETF

Date : 18/12/2018
Read: 4 mins

Government’s disinvestment drive set to continue with new offer on Bharat-22 ETF. Here's all you need know

Government looking to raise Rs 10,000 crore through follow-on offer on Bharat-22 ETF

The Government of India is planning to roll out another follow-on offer on its Bharat-22 exchange traded fund (ETF) in February 2019, with an estimated Rs 10,000 crore expected to be raised through this offer.

Although planned at a base issue size of Rs 5000 crore, there’s a provision to facilitate oversubscription of another Rs 5000 crore, thus arriving at the Rs 10,000 crore figure. This will be the third offer of this ETF; it raised Rs 22,900 crore in the previous two offers in November 2017 and June 2018.

The Government will reshuffle its investment basket for this particular ETF. The reason behind it is that the Government’s stake in some of the central public sector enterprises (CPSEs) will fall below 53% and these CPSEs form part of the ETF. Notably, some giant PSUs form part of this ETF, along with others like SBI, Bank of Baroda, ITC, Axis Bank etc.

Only last month, the Government managed to raise Rs 17,300 crore from another of its ETFs, the CPSE ETF, which is built through shares from 11 CPSEs. Through the combined offers in Bharat-22 ETF and CPSE ETF, the Government has so far achieved Rs 34,000 crore out of its Rs 80,000 crore disinvestment target.

What is an ETF?

An ETF or exchange-traded fund is an open-ended mutual fund scheme driven by a portfolio index that it follows. ETFs invest only in stocks that form part of the particular index and in a pre-decided proportion. ETFs are less expensive compared to mutual funds and are highly liquid. They can be held through a demat account and can be traded in the stock exchange, just like equities.

What is Bharat-22 ETF?

Bharat-22 ETF is a government-driven fund comprising 22 equity shares of CPSEs, public sector banks, and a few private companies that come under the strategic holding of Specified Undertaking of Unit Trust of India (SUUTI). The Bharat-22 fund is spread across industries like energy, finance, utilities, FMCG etc.

How has the Bharat-22 ETF been received previously?

The New Fund Offer of Bharat-22 ETF was rolled out in November 2017 as part of the 2017 budget initiatives. The offer was heavily oversubscribed, with 3.35 lakh applicants. This raised Rs 14,500 crore. A follow-on offer in June 2018 raised another Rs 8400 crore.

What’s the Return on Investment on this ETF?

It is a very recent ETF, so it is too early to establish a trend in its yield. At the time of its second offer a few months ago, the yield of Bharat-22 stood at -6.5% as compared to 4.5% from the S&P BSE Index. A more matured ETF, the CPSE, had a compound annual growth rate (CAGR) of 16.7% since its launch more than four years ago.

How do ETFs pay you?

ETFs have their funds invested in selected stocks. As these stocks yield dividends, the ETFs pay the same to ETF shareholders. As an investor, you can opt for a cash receipt or a reinvestment in the stocks itself. It is ideal for those who are looking for long-term investment and profit from a selection of strong and reliable companies.

What is the taxation angle?

Short-term capital gain on ETFs held up to one year is taxable at 15% plus cess, while for long-term capital gains the tax is 10%, provided the gain is in excess of Rs 1,00,000.