Bharat-22 ETF to open for investment: All you need to know

What is Bharat-22 ETF?

ETF is essentially a security that tracks an index, commodity or a basket of assets. However, the ETF trades happen on an exchange in form of tradable stock. ETF investments are usually cheaper than fund investments and since majority ETFs track to a specific index, there are lower operating expenses as seen comparatively in actively invested mutual funds. ETFs also have no minimum amounts for investment or sales loads. This is unlike in mutual funds which generally have both. Also, ETFs sometime improve rate of return. Though, do note that there is no guarantee of returns given in the ETF.

Bharat-22 ETF will invest in blue chip stocks including Central Public Sector Enterprises (CPSE), Specified Undertakings of the Unit Trust of India (SUUTI) and some PSU banks.

In the previous fiscal, the government earned Rs 8,500 crore via CPSE ETF route. The first CPSE ETF launched in comprised of scrips from the Oil and Natural Gas Corporation, Indian Oil Corporation, GAIL (India), Oil India, PFC, Bharat Electronics, Engineers India, REC, and Container Corporation of India.

Bharat-22 ETF will be listed on the BSE and NSE and the Bharat-11 ETF NAV would fluctuate according to the underlying stocks of the 22 companies.

A starting discount of three per cent is offered as part of the NFO to all investors. Also, from the date the units of the ETF are listed, up to a period of three years the expense ratio is up to 0.0095 per cent. During the NFO, those investors who have a demat account can apply for units of the ETF.

Who will manage the ETF and what sectors will be covered?

ICICI Prudential Asset Management Company (AMC) and Asia Index Private Limited will manage the ETF. It will be rebalanced in March each year. The index covers stock from six sectors–basic materials, energy, banking and finance, FMCG, industrial segment and utilities.

What stocks are covered under Bharat-22 ETF index and what is their weightage?

Basic materials segment includes stock from National Aluminium Co Ltd (NALCO) of a total 4.4 per cent.

Energy segment includes stock from ONGC (5.3 per cent), Indian Oil Corp Ltd (4.4 per cent), Bharat Petroleum Corporation Ltd (4.4 per cent) and Coal India Ltd (3.3 per cent.). The total share for the energy segment will be 17.5 per cent.

Banking and Financial segment includes stock from State Bank of India (8.6 per cent), Axis Bank (7.7 per cent), Bank of Baroda (1.4 per cent), Rural Electrification Corporation Ltd (1.3 per cent), Power Finance Corp Ltd (1 per cent) and Indian Bank (0.2 per cent). The total share of this segment is 20.3 per cent.

FMCG segment has stock only from ITC Ltd with a share of 15.2 per cent.

Industrial segment includes stock from Larsen & Toubro Ltd (17.1 per cent), Bharat Electronics Ltd (3.3 per cent), Engineers India Ltd (1.5 per cent) and NBCC (India) Ltd (0.6 per cent). The total weightage given to the industrial segment is 22.6 per cent.

Utilities segment includes stock from Power Grid Corp of India Ltd (7.9 per cent), NTPC Ltd (6.7 per cent), Gail India Ltd (3.7 per cent), NHPC Ltd (1.2 per cent), NLC India Ltd (0.3 per cent) and SJVN Ltd (0.2 per cent). The total weightage of utilities segment is 20 per cent.

Taxation

Investors will be taxed in a way similar to investments in equity or equity mutual funds. Capital gains held till a year will be counted as short term capital gains and will be taxed at 15 per cent with additional surcharge and cess.