CPSE ETF fund subsidy

cpse-etf

My first reaction was: “What a joke, public sector companies are now planning to make profit.” On a serious note, I am unable to understand why government is providing a 300cr subsidy. the three possibilities:

  1. Government of India is providing a 5% cash incentive to help Reliance Mutual funds raise funds.
  2. This is a market manipulation tactic. 6,000 cr of fresh capital locked in PSU ETF will prop up the price and help GoI realize better proceeds during disinvestment.
  3. This is GoI’s way of compensating the investors for the mismanagement and systematic robbing the investors of PSU companies.

There is no social benefit that I can think of government doling out 300cr of cash to individuals. Whatever be the reason, this 5% subsidy is the only only reason why you can consider this scheme. After all 10k of free money is hard to pass on. Additionally the dividend yield of 4.3% is not hard to ignore. However PSU companies constituting a portion of your portfolio is suicidal and should not be part of part of your long term portfolio.

The argument that investment in 10 companies is very concentrated is also illogical as it is a good diversification. 65basis points as management fee however is very high. However the root question is how much PSU stocks do you want in your portfolio esp when the market is touching 8,400 levels.

 

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