Golden opportunity for mutual fund investors? Bharat 22 ETF opens just for 1 day; Should you invest?

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Updated: February 14, 2019 10:46:59 AM

As per the scheme’s objective, the Bharat 22 ETF aims to provide returns that closely correspond to the returns provided by S&P BSE Bharat 22 Index.

Bharat 22 ETF, Bharat 22 ETF AOP, Bharat 22 ETF ICICI Prudential Mutual Fund, equity mutual fund investors, mutual fund investors, mutual funds, Exchange Traded FundIn total, there are 22 stocks under the S&P BSE Bharat 22 Index which comprises shares of Public Sector Enterprises, Public Sector Banks and some other strategic holdings.

The government will launch an Additional Offering Period (AOP) of ICICI Prudential Mutual Fund managed Bharat 22 ETF (Exchange Traded Fund) on February 14, 2019. It’s an AOP only for one day and applications supported by cheques or demand drafts, Transfer requests, RTGS and NEFT will be accepted till 8 p.m. on February 14, 2019.

The minimum investment amount is Rs 5,000 and there is no entry or exit load in the scheme. What makes the offer attractive is the discount of 5 percent for all investor categories and will be available to investors only if they subscribe under this AOP, and not if they purchase the existing units of the scheme already listed on the exchanges.

“A product can be sold more effectively when discounts are offered. The discount offered in this case is an action intended to make the offer attractive from an investor’s perspective. A discount becomes useful only in a scenario in which there is not much of fall expected in the markets,” feels Dr. Joseph Thomas, Head Research- Emkay Wealth Management.

Fund details*
The inception date of Bharat 22 ETF is August 10, 2017.
Total AUM is Rs 5,179 crore (As on Jan 31, 2019)
Equity: Large Cap
NAV : Growth: RS 33.6919
Expense ratio: 0.01% (As on Jan 31, 2019)
Return since Launch: -8.76%
Benchmark : S&P BSE Bharat 22 TRI
* As per Valueresearch website

Benchmark

As per the scheme’s objective, the Bharat 22 ETF aims to provide returns that closely correspond to the returns provided by S&P BSE Bharat 22 Index, subject to tracking error. This makes the Bharat 22 ETF a passively managed mutual fund scheme as its portfolio closely maps the Bharat 22 Index. The Bharat 22 ETF holds the same stocks in the same proportion as they are in the index.

Diversification

The diversification in Bharat 22 ETF is across stock level and also across the sector level. The stock level cap is 15 per cent, while on the sector level the cap is 20 per cent. The Bharat 22 ETF’s portfolio is diversified across six sectors – basic materials, energy, finance, FMCG (Fast-Moving Consumer Goods), industrials and utilities. In total, there are 22 stocks under the S&P BSE Bharat 22 Index which comprises shares of Central Public Sector Enterprises (CPSE), Public Sector Banks and some of the strategic holding of Specified Undertaking of Unit Trust of India (SUUTI).

“About 45% of the fund’s exposure is in its top 3 holdings, while 86% of the fund’s exposure is in its top 10 stocks which increases the volatility and risk of the fund. So, investors who have a high risk appetite can invest in Bharat 22 ETF,” informs Feroze Azeez, Deputy CEO, Anand Rathi Wealth Services.

Although, liquidity is a concern in the ETF segment, in this case, the S&P BSE Bharat 22 Index is considered to be a highly liquid index with more than 99 per cent of index constituents available under Futures & Options (F&O).

What is ETF

ETF’s are a variant of mutual funds schemes the units of which may be bought or sold only on a stock exchange. Therefore, to invest in Bharat 22 ETF or any other ETF, one need a demat account. ETF’s are mutual funds that tracks a specific index and one may call the ETF’s as index funds that can be traded online. In ETF’s, the fund manager’s role is absent as the ETF would merely track the index and no active management needs to be done. Returns would largely be the same as the index returns.

Should you invest

Investors need to be aware that Bharat 22 ETF is a 100 percent equity fund and although diversified across sectors, the underlying commonality is that all are government owned institutions. Should investors looking to invest in stocks of public sector enterprises in a cost-effective manner, after factoring in the discount being offered, consider investing in the AOP? Azeez feels, “It is not wise to only look at the discount aspect of it and invest but it is better to look at the overall portfolio performance and then take a call if investing in such funds.”

Even if someone looks to invest, how much should one allocate towards it? “The portfolio exposure should ideally be restricted to not be more that 5 per cent of the total portfolio. The significant positive is that the 22 stocks which make up the basket is predominantly a large cap one, and it is preferred at this juncture in investment portfolios,” says Dr.Thomas.

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