What is CPSE ETF? Strength of India’s Public Enterprises

The Central Public Sector Enterprises Exchange Traded Fund (CPSE ETF) is a unique investment vehicle that offers exposure to India’s leading public sector enterprises (PSEs). Managed by Nippon India Mutual Fund, this ETF is designed to track the performance of the Nifty CPSE Index, which comprises a select basket of government-owned companies. In this blog, we will explore what is CPSE ETF, including its share price trends, investment potential, and whether it is a good choice for investors.

What is CPSE ETF?

The CPSE ETF is a Central Public Sector Enterprises Exchange Traded Fund. The CPSE ETF is an exchange-traded fund that mirrors the Nifty CPSE Index, which includes some of the Government of India-owned select public sector enterprises (PSEs). As one of the government’s disinvestment initiatives, the CPSE ETF exposes investors to India’s top PSEs in industries such as energy, power, and minerals. Run by Nippon India Mutual Fund, it has low charges, steady returns, and a concentration on dividend-paying shares, such that it is a preferred scheme for conservative and long-term investors.

Nifty CPSE Index

Nifty CPSE Index is a thematic index that seeks to track the performance of Central Public Sector Enterprises (CPSEs) in India. The companies are selected on the basis of government holding and market capitalization and the index is a component of the government’s disinvestment policy.

Key Features of Nifty CPSE Index:

• Composition: Includes public sector enterprises from sectors like energy, power, and minerals.
• Objective: Facilitates the government’s disinvestment process by offering a benchmark for ETFs like the CPSE ETF.
• Weightage: Stocks are weighted based on their free-float market capitalization, with a cap to ensure diversification.
• Performance: Reflects the collective performance of India’s leading CPSEs.

The index is widely used as a benchmark for ETFs and provides investors with exposure to government-backed enterprises.

CPSE ETF Share Price and Performance

The CPSE ETF remains a promising option for conservative, long-term investors seeking stability and dividend income. However, its sectoral concentration may limit its appeal to those looking for diversified growth.

How does CPSE ETF work?

The CPSE ETF (Central Public Sector Enterprises Exchange Traded Fund) functions by passively replicating the Nifty CPSE Index, which consists of select Government of India-owned public sector enterprises (PSEs). The following is how it functions:

• Composition: The ETF invests in a basket of stocks from the Nifty CPSE Index, which represent important sectors such as energy, power, and minerals. These firms are selected based on parameters such as government ownership and market capitalization.
• Trading: CPSE ETF units are listed on stock exchanges such as NSE and BSE, similar to individual stocks. Units can be purchased or sold during trading hours at current prices.
• Creation and Redemption: Authorized participants may create or redeem ETF units in large quantities (creation units) by trading them for the underlying stocks or cash. This process provides liquidity and maintains the ETF’s price in line with the index.
• Expense Ratio: The ETF boasts of a low expense ratio (about 0.07%), offering a cost-savings investment product over actively managed funds.
• Returns: The return of the ETF is a replication of the performance of the Nifty CPSE Index, as it offers returns based on the collective performance of the constituent shares.
• Dividend Income: Quite a number of the underlying firms are dividend-endowed, paying investors a predictable income stream to complement capital growth.

How to Invest in CPSE ETF?

Step 1: Open a Demat and Trading Account

• To invest in CPSE ETF, you need a Demat account to hold the ETF units and a trading account to buy or sell them.
• You can open these accounts with any stockbroker or financial institution.

Step 2: Choose a Stockbroker

• Select a stockbroker or trading platform that provides access to the NSE (National Stock Exchange) or BSE (Bombay Stock Exchange), where CPSE ETF is listed.
• Popular brokers include Zerodha, Upstox, Angel One, and ICICI Direct.

Step 3: Search for CPSE ETF

• Log in to your trading platform and search for CPSE ETF using its ticker symbol (e.g., CPSEETF).
• Check the current price, historical performance, and other details.

Step 4: Place a Buy Order

• Decide the number of units you want to purchase based on your investment amount.
• Place a buy order at the market price or set a limit price if you want to buy at a specific rate.

Step 5: Monitor Your Investment

• Once the transaction is complete, the ETF units will be credited to your Demat account.
• Regularly monitor the performance of the CPSE ETF and the underlying Nifty CPSE Index.

Step 6: Redeem or Sell Units

• You can sell your CPSE ETF units on the stock exchange whenever you wish to exit your investment.
• The proceeds will be credited to your trading account.

Is CPSE ETF a Good Investment?

The CPSE ETF (Central Public Sector Enterprises Exchange Traded Fund) can be a good investment depending on your financial goals and risk appetite. The CPSE ETF is best suited for conservative, long-term investors seeking stable returns and dividend income. It appeals to those who value cost-effective investments with government backing, as it tracks India’s prominent public sector enterprises. Income-focused investors, especially those who prioritize high dividend yields, will find it particularly attractive.

• Low Expense Ratio: With an expense ratio of just 0.07%, it is one of the most cost-effective investment options.
• Dividend Yield: The ETF includes dividend-rich public sector enterprises, providing a steady income stream.
• Government Backing: The constituent companies are owned and supported by the Government of India, ensuring stability.
• Diversification: Offers exposure to multiple sectors like energy, power, and minerals through a single investment.
• Liquidity: Traded on NSE and BSE, making it easy to buy and sell units.

The CPSE ETF is a great option for those seeking stability and steady returns from dividend-rich public sector enterprises. Additionally, Nifty 50 Index Funds are highly recommended for investors looking for diversified exposure to India’s top 50 companies across sectors, offering long-term wealth creation and low-cost investment opportunities. Both are ideal for varied goals.

Frequently Asked Questions (FAQs)