CPSE ETF can invest up to 10 pc of corpus in derivatives

Fund managers of the CPSE Exchange Traded Fund (ETF), comprising shares of 10 bluechip firms, will be allowed to invest up to 10 per cent of the Rs 3,000 crore corpus in derivative products like stock futures and interest rate swaps.
The draft prospectus, filed by the Finance Ministry with the Sebi, says: "the Scheme may invest in derivative products like stock index futures, interest rate swaps, forward rate agreements or other derivatives...".
Derivatives are financial products, like futures, options or warrants, whose value is derived from the value of the underlying asset.
"The notional exposure of the scheme in derivative instruments shall be restricted to 10 per cent of the net assets of the scheme. The combined exposure of equity shares, debt securities and gross notional exposure of derivatives instruments shall not exceed 100 per cent of the net assets of the scheme," it said.

The investment in derivative products, it said, would help the fund managers to protect the value of portfolio and enhance the unit holder interest.
The ETF, which is expected to hit the markets this month, would have a corpus of Rs 3,000 crore and will be used as a vehicle for government stake sale in major PSUs, including ONGC, IOC and Bhel.

As per the draft prospectus, individual retail investors can invest a minimum of Rs 5,000, while the maximum limit is Rs 10 lakh.
Non-institutional investors/qualified institutional buyers can invest in the scheme with a minimum investment amount of Rs 10 lakh, the document said.

Other companies in the ETF basket are GAIL, REC, Oil India, Container Corporation, Power Finance, Engineers India and Bharat Electronics Ltd.
The government has so far raised about Rs 5,093.87 crore through stake sales in PSUs this fiscal. As per the revised estimates in the Interim Budget, the disinvestment target has been lowered to Rs 16,027 crore this financial year from Rs 40,000 crore.
Goldman Sachs is acting as the asset management company for the CPSE ETF.
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.

ETFs were introduced in India in 2001. Currently, there are about 33 ETFs with assets under management of close to Rs 11,500 crore held by 6.2 lakh investors. Gold ETFs dominate the market in India.