Bharat 22 ETF is more diversified ETF. Should you go for it?
ICICI Prudential Asset Management company will be the fund manager and the ETF will be rebalanced annually.
The government has announced second exchange traded fund (ETF)- Bharat 22 - to be used by the government for its disinvestment program. ETFs are like mutual funds but they can be sold and purchased on exchanges just like stocks. The first was CPSE ETF which was launched in March 2014 for raising funds through disinvestment of its share in public sector undertakings. ICICI Prudential Asset Management company will be the fund manager and the ETF will be rebalanced annually.
Performance of CPSE ETF
The performance of the CPSE ETF has been erratic being a thematic fund with more than half portfolio in just 10 PSU (public sector undertakings) energy stocks. Over the past three years it has delivered a return of close to two per cent, while the broad equity market indicator S&P Sensex has delivered a return of six per cent.
In 2015, CPSE ETF delivered a negative return of 14 per cent while Sensex, was down only five per cent. In 2016, CPSE delivered 18 per cent while S&P Sensex delivered two per cent. This year so far CPSE ETF has delivered a return of five per cent while Sensex is up 17 per cent.
Bharat 22 is more diversified
Bharat 22 is more diversified with 22 stocks as suggested in the name. Bharat 22 is much more broad based with 6 sectors (Basic Materials, Energy, Finance, FMCG, Industrials & Utilities). The maximum allocation to a single sector that is finance is at 20 per cent. It also has private sector companies -- Axis Bank, L&T, ITC which the government is holding under the Specified Undertaking of Unit Trust of India (SUUTI).
Among stocks L&T and ITC have the highest allocation of 17.1 per cent and 15.2 per cent respectively.
Should you invest?
The government gave a five per cent discount at the launch of CPSE ETF to retail investors and again those who held the ETF for at least a year got one fifth loyalty bonus.
No such discounts has been announced on Bharat 22 yet, which could have been an attraction for some investors.
However, experts believe that this fund is not for the common investors.
"Ideally, such funds are for more evolved investors. For a common investors it is better to stick to diversified funds. While Bharat 22 is more diversified as compared to CPSE ETF but it is still a thematic fund with PSU focus. And in time like these when markets have run up quite a bit, it would be prudent for investors to stick to diversified funds and invest systematically," says Anil Rego, CEO & Founder, Right Horizons.
Thematic funds performance can be erratic as they will do well over certain periods and a common investor may not be able to stomach the risk.
"Not more than 10 per cent of your total financial portfolio in one ETF scheme," says Anil Chopra, Group Director, Bajaj Capital.
"All in all Bharat 22 is not a very great fund to be excited about and only evolved investors with a long-term exposure can put some partial money in this fund," added Rego.