With an aim to kick off disinvestment in a big way, the Finance Ministry has initiated the process of setting up a Central Pubic Sector Enterprises Exchange Traded Fund (CPSE-ETF). This fund will help the investor to reduce investment risk.

An ETF is just like an equity mutual fund scheme which consists of shares of many companies. It tracks an index and is traded on a stock exchange. Its constituent stocks are listed and actively traded. Since this fund has shares from various sectors, it provides diversification. An investor may buy just one unit of such an exchange traded fund but will get benefit from trading in constituent stocks.

The Department of Disinvestment has invited requests for proposals for engaging an advisor to create and launch the fund. The advisor will be selected on the basis of experience and expertise in advising on creation and launch of equity ETFs or equity mutual funds (MFs).

The Government may subsequently appoint an Asset Management Company (AMC) to act as the ETF provider for the proposed fund . The entity appointed as advisor, or its sister concern or an arm thereof, will not be eligible to participate for selection as the AMC or ETF provider, so as to avoid any situation of conflict of interest.

The usual mode of taking a partial disinvestment offering of a CPSE to the market include initial or further public offering, offer for sale through stock exchange or an institutional placement programme. The proposed CPSE-ETF will serve as an additional mechanism for the Government to monetise its shareholdings in those CPSEs that will eventually form part of the ETF basket. The Government aims to mobilise Rs 30,000 crore through disinvestment this fiscal. It has already approved disinvestment in six companies — Rashtriya Ispat Nigam Ltd (RINL), SAIL, Oil India, MMTC, Nalco and Hindustan Copper. Disinvestment in RINL will be done through IPO while in the remaining five, offer for sale through stock exchanges or auction method will be used.

Though the Government is yet to open account through disinvestment this year, it is hopeful of expediting the same in the remaining seven months of the current fiscal.

Shishir.Sinha@thehindu.co.in

(This article was published on September 20, 2012)
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