Reliance MF announces further fund offer of CPSE ETF, to raise Rs 4,500 crore

Sundeep Sikka, executive director and CEO, Reliance Nippon Life Asset Management
Image: Mexy Xavier

Reliance Mutual Fund announced the further fund offer (FFO) of the Central Public Sector Enterprises Exchange Traded Fund or CPSE ETF which plans to raise up to Rs 4,500 crore as base issue size with an option to retain oversubscription to the tune of Rs 1,500 crore. The issue opens on January 17, 2017 and closes on January 20th.

This is the second tranche of the ETF that will be used by the government of India as part of its divestment programme. The first tranche of the CPSE ETF or the New Fund Offer was launched in March 2014 which raised Rs 3,000 crore. The ETF became a hit among investors because it had two sweeteners attached to it. The first was an upfront 5 percent discount to the prevailing market price and a bonus of 1/15 bonus for investors who stayed with the fund for more than a year.

The present FFO maintains the 5 percent discount, but does not have the bonus feature attached to it. The issue is open for anchor investors (who invest more than Rs 10 crore), retail investors, retirement funds and qualified institutional buyers (QIBs).

The first tranche of the ETF has worked out very well for the investors who stayed with the fund for more than a year. Over the last one year (ending January 11, 2017), the fund gave a 25 percent return, compared to the Nifty 50 index, which was up by only 10 percent. The ETF also has a four percent dividend yield making the entire investment proposal very attractive.

“This is a product that has given returns to investors at a lower volatility and will work very well for the long term investor,” said Sundeep Sikka, executive director and CEO, Reliance Nippon Life Asset Management.

The CPSE ETF is a passive investment fund created to help the government in its disinvestment programme. The fund invests into ten stocks, including ONGC (24.35 percent), Coal India (20.54 percent) and Indian Oil Corporation (17.96 percent). These stocks are selected on the basis of an established track record, government holding, market capitalisation and dividend history.