CPSE ETF only for high risk takers

On April 7, it opened higher at Rs 19.45 and closed at Rs 19.36. And on April 9 it opened at Rs 19.40 and closed at Rs 19.69. Thus, returning close to 13% (against the issue price) in less than a week.Goldman Sachs Mutual Fund - Central Public Sector Enterprises (CPSE) exchange-traded fund (ETF) listed last week. On the first day of trade, the fund rose 10.88% against its issue price (Rs 17.45). According to data from the National Stock Exchange's (NSE) website, CPSE ETF units' closing price on April 4 was Rs 19.35.

The CPSE ETF basket consists of shares of ten big public sector units (PSUs) --- Oil & Natural Gas Corp (ONGC), GAIL India, Coal India, Indian Oil, Oil India, Power Finance Corporation (PFC), Rural Electrification Corpoartion (REC), Container Corp, Engineers India and Bharat Electronics.

This is a great way to add some PSU flavour to your portfolio if you don't have any. "It's a good idea to invest in CPSE ETF even now. It has good PSU stocks. If there is a stable government at the Centre, then there will be good appreciation in these stocks. Plus, PSU stocks give high dividend yield," says certified financial planner Pankaj Mathpal. He adds that the stocks included in CPSE have price-to-earning (PE) ratios lower than the markets'.

However, some others beg to differ. Reason: The index has higher exposure to only ten stocks and few sectors --- oil & gas and energy. This makes it a concentrated index. Gas explorer ONGC has the maximum weightage of 27.6% in the index, followed by another energy company GAIL India. Nearly 60% of the index comprises of energy companies.

"The portfolio is highly skewed towards energy, oil & gas sectors --- stocks that the Government wants to divest --- making CPSE ETF a risky bet for retail customers. Most won't understand the dynamics of how these sectors function and hence will never be able to understand take advantage of it," says a chief investment officer of a mutual fund house. Despite being inexpensive, these stocks can prive to be volatile because they are policy-heavy and cyclical stocks.

A diversified index would be ideal to invest for individuals. As per mutual fund rating agency Value Research, equity diversified funds have returned 24% in the last one year (as on April 9). The CPSE ETF does not have anyrepresentation from defensives.

And now even the 5% discount to the market price won't be available for retail investors.

As compared to the NFO period (March 18-21), the units are expensive now. If you didn't buy the units less than a month back, there is no reason for you to buy them now, say experts, because there has been no change in the markets.
 

Says a certified financial planner, "As these companies are government controlled political considerations can often override companies' interests. There are other mutual funds scheme based on the PSU theme. Their investment strategy is more diversified and they are actively managed." SBI PSU Fund returned 5.65% in the past year and Religare Invesco PSU Equity returned 6.86%.

If you still insist on investing, take the systematic investment route. And ensure you can stomach sectoral risks. You are suggested to cap your exposure in these funds to ten%.

Mathpal says in the long-term it doesn't make any difference whether you invest a lumpsum or via SIP. But given the markets have peaked, SIP is the best option. Reason: Market fundamentals aren't very strong so you should be wary.