CPSE ETF FFO – How to Apply / Invest & Other FAQs

This post is written by Shiv Kukreja, who is a Certified Financial Planner and runs a financial planning firm, Ojas Capital in Delhi/NCR. He can be reached at [email protected]

Further Fund Offer (FFO) of the government’s CPSE ETF is getting open for subscription for retail investors from today. But, many retail investors are still finding it difficult to apply for it as they do not have demat accounts which is a must to apply for this ETF. Though it is difficult to get a demat account opened in such a short period of time, investors can still explore the option of getting one opened.

There are some other important queries as well which I would like to address in this post so that you are able to invest in this ETF starting today. When I posted my article on this FFO on Monday, TCB had some queries which did not get addressed in that post. Here are all his queries and I’ll have some more FAQs after addressing these.

1) Allotment is on first come first serve basis or not?

Allotment will be made on a proportionate basis as it is done in case of equity IPOs and not on a first-come first-served basis. In case of oversubscription, efforts will be made to allot 5,000 units to each of the retail investors.

2) Can multiple applications be put in this issue?

Yes, you can submit multiple applications. But, to be considered a retail investor and get preference in allotment over other investors, the sum of all your applications should not exceed Rs. 2 lakhs.

3) Is it mandatory to apply only through cheque and not ASBA?

ASBA facility is not there in this offer. So, you need to submit a cheque or a DD along with the application form or invest online through your broker’s trading platform to apply for this ETF.

4) Is it necessary to issue cheque from same bank account which is linked to demat?

No, it is not mandatory to use the cheque of the same bank account which is linked to your demat and trading account. You can use any bank account to make the payment. However, third party payments are not allowed.

5) Is it necessary for applicant to be KYC compliant for mutual funds?

Yes, the applicant is required to be KYC compliant in order to invest in this scheme.

6) If an applicant is not KYC compliant, can he submit KYC form with necessary documents along with the application form of this ETF?

Yes, you can submit your KYC form along with a photograph and the required documents i.e. PAN card copy and address proof copy, along with the application form.

7) If I apply for Rs. 4 lakhs and allotted only Rs. 1.5 lakhs worth of units due to oversubscription, will I be considered as a retail investor and get 5% discount?

If you apply for more than Rs. 2 lakhs, you’ll still be entitled to a 5% discount. But, your investor category will depend on your application amount and preference will be given to the retail investors.

8) Given that high likelihood that this will get oversubscribed, and with a sort of desire / guarantee to give 5000 units to each retail investor, is it not prudent to apply for 5000 units only rather than blocking Rs. 2 lakh in FFO application?

As per the offer document, in case of oversubscription, retail investors would get at least 5000 units of CPSE ETF allotted. So, if you apply for Rs. 2 lakh worth of its units and the issue gets oversubscribed, then you will not get full allotment. So, if you expect the issue to get oversubscribed, then it is better to apply for 5,000 units only so that you get high allotment.

9) What will happen on listing day? Can it go below allotment price and how much listing gain we can expect?

Market-linked investments can move either way of the return matrix. So, the returns of this ETF could also turn negative if stock prices of its constituents fall after you get its units allotted. But, a 5% discount provides some kind of cushion in such a scenario.

Moreover, one should not invest in this ETF only for its listing gains. In the event of unfavourable listing, you might have to sell your units at a loss or keep holding it for a longer time than actually planned for.

10) I don’t have a demat account, but I want to apply for this ETF. Is it mandatory to have a demat account to apply for this FFO? Can I apply for it like I apply for any other mutual fund?

Demat account is mandatory to apply for this ETF. Without a demat account, your application won’t go through and it is liable to get rejected.

11) What will the tax treatment in case of capital gains – short term (STCG) and long term (LTCG)?

Taxation for this ETF will be like that of equity shares or equity mutual funds. LTCG will be tax exempt and STCG will be taxed at 15%.

12) Can we buy this ETF directly from the markets? If yes, what would be the difference between FFO and direct market purchase?

Yes, you can buy this CPSE ETF from the stock markets through your equity trading account. The only difference is that you will not get the 5% discount offered by the government to the investors for subscribing to this ETF in FFO.

13) What is the difference between FFO and actively managed mutual funds already available in the market and whose portfolio contains same stocks?

Actively managed funds, having the same stocks, can increase or decrease their proportion of investment in each of these stocks. They have no obligation to follow & alter their portfolio as per the Nifty CPSE Index. Whereas CPSE ETF has to follow the CPSE Index. Moreover, you will get 5% discount only with this FFO and not with other mutual funds.

14) How do I invest or where can I submit my application?

Physical Application – You can submit your physical application at the Investor Service Centers (ISCs) of Reliance Mutual Fund and Karvy Computershare branches.

Additionally, KRA compliant individual investors can use the below mentioned online modes to apply for this ETF:

(i) Reliance Mutual Fund website

(ii) Reliance Mobile App

(iii) NSE MFSS

(iv) BSE StAR MF

(v) NMF II Platform of NSE

(vi) e-ETF under web based NSE e-IPO platform

(vii) MF Utility

15) Is there any lock-in period for this investment?

There is no lock-in period applicable to those investors who do not avail any tax benefit u/s 80CCG out of this ETF. They would be free to sell their units any time they desire to do so.

However, investors who seek tax exemption u/s 80CCG, will be subject to a lock-in period of 3 years – 1 year of fixed lock-in and 2 years of flexible lock-in. The fixed lock-in period will start from the date of your investment in the current financial year and will end on March 31 next year i.e. 2018. The flexible lock-in period will be of two years, beginning immediately after the end of the fixed lock-in period i.e. beginning April 1, 2018 till March 31, 2020.

If you have any more queries regarding your investment in this ETF, please share it here, I’ll try to answer it as soon as possible.

Application Form – CPSE ETF FFO

For any further info or to invest in the CPSE ETF Further Fund Offer (FFO), you can contact us on +91-9811797407 or mail me at [email protected]