Easier rules on the anvil for public sector ETF manager

The Department of Disinvestment allows taxes to be charged to the scheme but freezes fee quoted for three years

The Department of Disinvestment has relaxed a key clause in the Request for Proposal inviting bids from asset management companies (AMCs) to manage a proposed exchange-traded fund (ETF) comprising public sector undertakings.

The government is planning to float this fund as an additional mechanism to divest its stakes in state-run companies. In a crucial relief to the asset managers, the bid document said: “All the applicable taxes, cess and duties can be charged to the scheme, as per Sebi (Securites and Exchange Board of India) regulations and any other applicable guidelines.”

Under the original proposal, such levies were to be included in the fee quoted by the asset manager. “The fee quoted by the bidder should include all the applicable taxes, cess and duties, as per Sebi regulations and any other applicable guidelines,” clause 7.2 of the original Request for Proposal had said.

The government has also made amendments to put on record that it will endeavour to structure a “marketable product”. The document said: “The government shall formulate the CPSE (Central Public Sector Enterprise) ETF basket, after taking into account, inter alia, the opinion of AMC / ETF provider and the advisor, and shall endeavour to structure a marketable CPSE ETF product. However, the decision of the government in terms of the CPSE ETF stock basket shall be final and binding.”

However, a condition has been added wherein the asset manager will not be allowed to increase the fee for three years. The fee “shall not be revised upwards for at least three years from the date of listing of CPSE ETF units allotted to the investors in the NFO (new fund offering), and may be changed in accordance with the regulatory stipulations in this regard,” the document said.

There was no change in the format of the financial bids, wherein the manager has to quote an expense ratio as a percentage of net weekly average of assets managed. While this will be for the first Rs 5,000 crore, the expense ratio will come down to 80 per cent of the fee quoted for assets between Rs 5,000 crore and Rs 15,000 crore. If the fund grows bigger than Rs 15,000 crore, incremental assets will earn 60 per cent of the expense ratio quoted.

The last date for bids is March 26. Eligible bidders will make a presentation of April 2 before an inter-ministerial group, following which the winner will be chosen, based on the technical and financial parameters prescribed.

ROUTE RELAXATION

• The government is planning this fund as an additional mechanism to divest its stakes in state-run firms
• All the applicable taxes, cess and duties can be charged to the scheme. Under the original proposal, such levies were to be included in the fee quoted by the AMC
• The government says it will endeavour to structure a “marketable product”