The government seeks to launch an exchange-traded fund (ETF) consisting of stocks of PSU banks, insurers, and financial institutions this fiscal and has invited bids from advisors to explore its feasibility.
After the resounding success of CPSE ETF and Bharat-22 ETF, the government is looking at diversifying the ETF basket by including stocks of public sector banks (PSBs), public sector insurance companies (PSCIs) and public sector financial institutions (PSFIs).
With the view of encouraging response and demand for such product, the Government proposes to create and launch a new ETF in addition to the existing two ETFs, comprising stocks of listed PSBs, PSICs and PSFls, DIPAM said while inviting bids from advisors by July 26.
The Department of Investment and Public Asset Management (DIPAM) will appoint one advisor with experience and expertise in advising on the creation and launch of ETFs/ Mutual Funds/Index linked fund.
The plan to launch a bank ETF comes on the back of the government seeing huge investor demand for two existing ETFs. It has raised Rs 32,900 crore through two tranches and an additional fund offer of Bharat-22 ETF, and Rs 38,000 crore in five tranches of CPSE ETF in the domestic market.
Currently, there are two state-owned insurance companies – General Insurance Corp of India and New India Assurance Co Ltd – and 19 public sector banks that are listed on exchanges. Besides, financial institution IFCI is also listed on the exchanges.
The proposed new ETF will serve as an additional mechanism for the Government to monetize its shareholdings in listed PSBs, PSICs and PSFls that will eventually form part of the new ETF basket, the DIPAM said.
The government will also rope in an Asset Management Company (AMC) to act as the ETF provider and a legal advisor for the proposed ETF.
The advisor will advise the government on creating and launching of the proposed ETF. It shall be a three-stage process wherein stage-I shall be to help create a new ETF, stage-II shall include help launch and manage NFO and stage-III shall comprise FFO/Tap and any other subsequent offering (s) and obligations arising out NFO/FFO/Tap, etc.
It would also advise on the new ETF basket composition and develop the key marketing and positioning themes of the ETF. It would also give suggestions on the appropriate basket composition and conduct necessary surveys and investor feedback to validate the basket composition with all interested parties.
It would also examine various options through which the new ETF can be established either by AMCs on their own or by the government or any other alternative method, including the pros and cons of each option.
The bidders for advising DIPAM on financial sector ETF should be a Sebi or RBI registered reputed merchant bankers/investment bankers/consulting firms/financial institutions/asset management companies; either singly or as a consortium; or should have been involved in advisory or transaction capacity or have launched an ETF/Mutual Fund/ Index linked Fund during April 1, 2016 to March 31, 2019, worth Rs 5,000 crore or more with minimum size of Rs 500 crore in any single issuance.
The government currently has two exchange-traded funds – CPSE ETF and Bharat-22 ETF – listed on domestic exchanges. ETFs function like a mutual fund scheme and have underlying assets of government-owned companies. The price of an ETF’s shares will change throughout the trading day as the shares are bought and sold on the market. This is unlike mutual funds, which are not traded on an exchange, and trade only once per day after the markets close.
The Finance Ministry has also started consultations with global investors for launching CPSE-scrip based ETF in the overseas market.
