Category: Investments

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]

It was Modi Government’s first budget on Thursday and it made the investors sit on a roller-coaster ride in the stock markets. Some must have enjoyed the ride, but some would have found themselves caught at a higher level even after having a so called “Excellent Budget”.

Before we find out why the markets fell even after having a good budget, let’s first look at some of the hits and misses of Budget 2014 from a retail investor’s perspective.

Hits:

* Basic tax exemption limit has been increased to Rs. 2.5 lakhs as against Rs. 2 lakhs earlier – The proposal will help you save Rs. 5,150 in tax irrespective of the tax bracket you are in.

For Senior citizens, the limit has been hiked to Rs. 3 lakhs from Rs. 2.5 lakhs earlier. So, even if you are a Senior citizen or a taxpayer in the 30% tax bracket, the benefit will be of Rs. 5,150 only.

* Exemption under section 80C has been increased to Rs. 1.5 lakhs as against Rs. 1 lakh earlier – The proposal will help you save Rs. 5,150 if you are in the 10% tax bracket, Rs. 10,300 if you are in the 20% tax bracket and Rs. 15,450 if you are in the 30% tax bracket.

* Exemption limit under section 24 on account of interest on home loan in respect of self-occupied property has been increased to Rs. 2 lakhs as against Rs. 1.5 lakhs earlier – If you have taken a home loan and the property is a self-occupied property, then this proposal will help you save another Rs. 5,150, Rs. 10,300 and Rs. 15,450, if you are in the 10%, 20% and 30% tax brackets respectively.

* Investment limit in PPF has been hiked to Rs. 1.5 lakhs as against Rs. 1 lakh earlier – The proposal will help the Senior citizens or investors who are saving for their retirement years or the conservative investors in building up a healthier corpus for achieving their financial goals.

Misses:

* LTCG Period & Tax Rate on Debt Mutual Funds Hiked – This is one bad news for the debt fund investors, especially the fixed maturity plan (FMP) investors. April 1, 2014 onwards, your investment in a debt mutual fund will have to wait for 36 months (or 3 years) to qualify for the status of a long term capital asset as against the 12 months period earlier.

Though the step has been taken to stop the corporate investors from using these debt fund schemes as a tax arbitrage opportunity, this proposal is definitely going to reduce retail participation in debt mutual funds in a substantial manner. Overall, it is going to hit the mutual fund industry very badly as they have majority of their assets under the debt category.

Moreover, this financial year onwards, the tax rate has also been hiked to 20% from 10% earlier. So, it will be a double blow for the debt fund investors.

* RIP Tax-Free Bonds – In his budget speech, Finance Minister Arun Jaitley did not mention anything about tax-free bonds which got extremely popular with the investors in the last 2-3 years. So, like Infra Bonds which used to carry tax exemption u/s 80CCF till a couple of years back, I think fresh issuance of tax-free bonds has also been discontinued now. So, now onwards, the investors will have to explore some other investment opportunities which could earn them a tax free income.

* RGESS Left Untouched – UPA’s fractured investment scheme, Rajiv Gandhi Equity Savings Scheme (RGESS), got no treatment from the NDA either. In fact, Arun Jaitley did not even mention the scheme in his budget speech. So, all those investors, who were expecting the Finance Minister to make some changes in this scheme, got nothing but a big disappointment.

* Infrastructure Bonds u/s 80CCF Not Reintroduced – After getting ignored by the former Finance Ministers, investors were hoping for a revival of exemption for infrastructure bonds which used to give Rs. 20,000 exemption under section 80CCF or a new investment opportunity with a separate tax exemption. But, their hopes were dashed by Mr. Jaitley as no new exemption got introduced by the new Finance Minister.

So, why the stock markets fell even after having the so called “Excellent Budget”?

It is not the budget disappointment which caused our markets to fall equally sharply after zooming up 475 points intraday, it was the fear & fall in the European markets which caused such a panic selling by the smart money here.

The panic was caused due to concerns of a possible default by the Espírito Santo Group and a sharp fall in the share price of Banco Espirito Santo, Portugal’s leading financial institution, which later got suspended for trading.

Most of the European stock indices were trading lower when our markets got closed for trading at 3:30 p.m.

Coming back to our budget, I think, with no tax-free bonds around this year and a quite unfavorable tax treatment for the debt mutual funds, the investors will find it very unattractive to deploy their money in some of the fixed income investments. Also, as it is termed as a progressive budget by most of the market experts, it was the best that Finance Minister Arun Jaitley could have done for the economy in such a short period of time.

Every clue is guiding the investors to invest their money in equities this year, what we need is a smiling Rain God. So, after a very long time, will the markets oblige with some healthy and steady returns this year? Only the time will tell.

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]

Edelweiss Financial Services’ subsidiary, ECL Finance Limited, came out with its first NCD issue in January this year and the issue got oversubscribed on the 2nd day itself. The company then decided to close the issue on the 3rd day due to such oversubscription. Boosted by such a good response, the company is all set to launch its second public issue of unsecured, redeemable, non-convertible debentures (NCDs) from June 17th i.e. the coming Tuesday.

Size & Objective of the Issue – The company plans to raise Rs. 400 crore from this issue, including the green shoe option of Rs. 200 crore. The company plans to use the proceeds for various financing activities, including lending and investments, to repay its existing loans, for capital expenditures and other working capital requirements.

Credit Rating of the Issue – Two rating agencies, CARE and Brickwork Ratings, have rated this issue as ‘AA’ with a ‘Stable’ outlook. As mentioned above, these NCDs will be unsecured, unlike those offered during the first issue.

Coupon Rate & Tenor of the Issue – Last time, there were two tenor options – 36 months and 60 months. This time the company has decided to issue its NCDs for a duration of 70 months and that is the only tenor option. The company has decided to offer 12% per annum rate of interest, payable monthly, annually or on a cumulative basis at the end of 70 months.

ECL Finance vs. Muthoot NCDs –Muthoot NCDs issue is also open for subscription right now and it is scheduled to close on June 26. As you can check from the table above, Muthoot is offering relatively lower rate of interest. For a period of 60 months, Muthoot is offering 11% p.a. payable monthly, whereas ECL is going to pay 12% p.a. for 70 months payable monthly or annually. Muthoot is offering 0.50% extra if you opt for its annual interest payment option.

Also, ECL is offering to more than double your money in 70 months’ time, whereas Muthoot will return exactly the double of your investment in 75 months’ time.

Apart from being the issues of two different companies with different business models, ECL Finance NCDs are unsecured, whereas Muthoot Finance NCDs are secured, except the last option of 75 months.

Minimum Investment – If you want to apply for these NCDs, you need to invest a minimum of Rs. 10,000 i.e. at least 10 NCDs worth Rs. 1,000 each and in multiples of 1 NCD thereafter.

No Additional Benefit to Edelweiss Shareholders – In the last issue, Edelweiss shareholders were entitled to an additional coupon of 0.25% p.a. over and above the base coupon rates. No such special benefit has been granted to the shareholders this time around.

Categories of Investors & Allocation Ratio – The investors have been classified in the following three categories and each category will have the below mentioned percentage fixed in the allotment:

Category I – Institutional Investors – 30% of the issue is reserved

Category II – Non-Institutional Investors – 20% of the issue is reserved

Category III – Individual & HUF Investors – 50% of the issue is reserved

NCDs will be allotted on a first come first served basis.

NRIs Not Allowed – Non-Resident Indians (NRIs), foreign nationals and qualified foreign investors (QFIs) among others are not eligible to invest in this issue.

Demat & TDS – Demat account is not mandatory to invest in these bonds as the investors have the option to apply these NCDs in physical form as well. Also, though the interest income would be taxable with these bonds, NCDs taken in demat form will not attract any TDS.

Listing, Premature Withdrawal & Put/Call Option – These NCDs will get listed on both the national exchanges i.e. Bombay Stock Exchange (BSE) as well as National Stock Exchange (NSE). The investors can always sell these bonds on the exchanges anytime they want, but there is no put option with the investors to redeem these bonds before the maturity period gets over. The listing will take place within 12 working days after the issue gets closed.

Financials of ECL Finance

I covered the profile of ECL Finance while posting its first issue in January, so I don’t think there is a need to do it again. Rather I would like to cover its updated share of financials and product line here.

(Note: Figures are in Rs. Crore)

As you can check from the table above, the revenues of the company grew by 25% last year from Rs. 650.64 crore to Rs. 812.28 crore. Profit after tax (PAT) also rose 32% from Rs. 121.17 crore to Rs. 160.04 crore. This clearly shows that the company is on a growth path despite challenges in the economic environment.

As the loan book witnessed a satisfactory growth of 27%, gross and net NPAs of the company also jumped to 1.24% (0.52% earlier) and 0.35% (0.16% earlier) respectively. Capital Adequacy Ratio (CAR) also declined to 16.06% from 18.40% in the previous financial year, but it is still above the RBI’s stipulated minimum requirement of 15%.

Performance of its Listed NCDs of Last Issue

With a falling interest rate scenario and analysing the price performance of its NCDs of last issue, it seems to me that this issue also is fairly valued at 12% p.a. rate of interest. The only issue I have is that these NCDs are unsecured in nature. But, again I think the risk is fairly compensated with 12% p.a. rate of interest.

Application Form of ECL Finance NCDs

Note: As per SEBI guidelines, ‘Bidding’ is mandatory before banking the application form, else the application is liable to get rejected. For bidding of your application, any further info or to invest in ECL Finance NCDs, an investor can reach us at +919811797407

One of the more futile functions of brokerages is to issue targets on indices, and to a lesser extent on stocks. Often these are horribly wrong and almost always, brokerages tend to issue a higher target when the market is going up, and revise it downwards when the market is going down.

These days since the markets are going up, all brokerages are scampering to issue higher Sensex and Nifty targets, and it’s funny to see a whole bunch of them issuing a target that is close to what the others are issuing, and you feel that surely these people are hedging their bets, and don’t mind being wrong in a herd rather than be correct alone.

There’s rarely any accountability on what happened versus what they said and I feel that anyone who uses these targets to buy or sell is doing a great dis-service to themselves.

I’m going to start a post here that collates Sensex targets from various brokers, and at a certain point in future compares them to what the market is actually doing, and see how various brokerages do.

Brokerage	Target	Target Date	Issue Date
Edelweiss	29,000 (Sensex)	Dec 31 2014	May-14
Macquarie	28,000 (Sensex)	Mar 31 2015	May-14
Deutsche Bank	28,000 (Sensex)	Dec 31 2014	May-14
BNP Paribas SA	28,000 (Sensex)	Dec 31 2014	May-14
Nirmal Bang	28,000 (Sensex)	Dec 31 2014	May-14
Nomura	27,200 (Sensex)	Dec 31 2014	May-14
Bank of America Merrill Lynch	27,000 (Sensex)	Dec 31 2014	May-14
Citigroup	26,300 (Sensex)	Dec 31 2014	May-14
Goldman Sachs	8,300 (Nifty)	Dec 31 2014	May-14
Sharekhan	8,000 (Nifty)	Dec 31 2014	May-14
UBS	8,000 (Nifty)	Dec 31 2014	May-14

The idea is that observing this for an year or two will either show that these targets are close to being right, and have some use or are completely bogus, and that data will be useful for people who are swayed by these things to make decisions to either buy or sell stocks, and will hopefully help them become better investors.

There is a common notion that the older you get, the lesser equity you should own, and the rationale for this is you shouldn’t be invested in too much equity when you’re retired or towards retirement because a drop in the market may not leave you enough time to recover from it, and you may be forced to sell your stocks while you are still at a loss.

I don’t quite agree with this idea in the sense that you can’t just say that if you’re old you should have less of equity, and if you’re young you should have more of equity disregarding your knowledge and comfort with owning such a volatile asset in the first place.

In fact, in a lot of cases it makes sense to have a higher level of equity in your portfolio when you are older because your experience teaches you to deal with the volatility that is inherent in this game, and your longer term outlook to owning assets may be a lot more developed than someone much younger.

In a sense, someone who is forty years old and has owned shares for the last decade can easily see herself hold on to those shares for the next decade compared with someone who is 25 and has just started investing in shares, and can’t really develop that kind of outlook right away.

More than age, I think how much equity you own depends on the following three factors:

1. How well funded are your medium term goals? If you have have a wedding or an education expense coming up in the next five to seven years, how well are you preparing for that? Do you know how much that is expected to cost, and do you have a good sense of where you can find the money to fund that? These calculations are often simple, and quite eye opening as well, and if you do these calculations and say fund most of your child’s education through a simple RD then you will be able to invest the rest of your money in more volatile equity with a lot more peace of mind.

2. How knowledgeable are you with the stock market? A lot of people equate this to trading, or following the market closely, or reading a lot about it. But that’s not necessary, if you are grounded on solid long term principles, and reasonably aware of what is going on in the economy in general then that’s all it needs. Additionally, you shouldn’t be dabbling in penny stocks or shady companies the likes of which can go down to zero. In fact, for a lot of people, there is no reason to buy stocks directly at all, and it is good enough to buy a few good mutual funds.

 3. How patient are you with the market? There are plenty of good funds that have given just three, four, five percent return in the last three years. Some have even given negative returns, and someone who started investing when the market was relatively higher would surely not even be seeing positive returns right now, let alone returns that beat a simple FD. That’s just the nature of Indian stock markets, and I don’t think it is going to change any time soon no matter who comes to power. If you are in the market, you have to be in the market with the mentality that you are in it for five, ten, twenty years, and in that time frame, the market will at least have one up cycle which will let you cash out (if nothing else). My experience is that the cycle is much shorter, but giving yourself that much time, and ensuring that you don’t need the money in the next few years ensures that you don’t sell in panic.

So, my answer to the question of age affecting portfolio is — it should have very little impact, if anything at all, and instead you should seek yourself to educate on the market in general and also about your finances and upcoming goals.

The Nifty crossed 7,000 today, and continued the uptrend which started a few months ago or the bigger trend that started a few years ago.

If you look at the annual Nifty returns — 2011 returned a negative 25%, 2012 returned a positive 27%, 2013 returned about 7% and we have seen the Nifty up about 11% already this year.

This kind of optimism usually brings with it new investors, and emboldens existing investors to invest more in the markets, which is what we’re seeing now as well.

AMFI reported that 400,000 new accounts were added last month taking the number of total equity folios to 29.56 million, which is still less than its peak of 41.13 million in March 2009, but does speak of people gaining confidence and returning to equity.  Interestingly, if you see the chart below you would see that the peak was reached in a year when the market did tremendously well. However, what the chart can’t tell you is that the pain you feel when the market halves in value is much more than any 81% gain you could ever witness.

Even personally, I feel that more people are talking about equity right now than any time in the past and I have a feeling this will continue for at least a few more months.

In terms of investing strategy though, getting into the markets, and increasing your equity positions when there is optimism in the market is not the right way to go and I’d caution any readers who are only now getting into the market, or increasing their SIPs at this time.

What you should have ideally done is buy into the markets when they were depressed, and that would have ensured that you were sitting on considerable gains right now, but if you haven’t done that and plan to chase returns right now, then that’s a dangerous approach.

The long term plan of any investor should be to get into a mindset where they can put in a reasonable sum of money into equity every month, and adjust that sum upwards or downwards based on market conditions. The hard part about this is you must adjust that sum upwards when the market is down, and lower it a little when the market is up. I’ve been doing this for years now, and also recommending others do this, as I find that this is a certain way to accumulate stocks at a reasonable price, and then take advantage of market highs to book some profits from time to time.

If you’re in the category of investors who don’t have any equity investments, and want to start now then I’d say start with a SIP that is smaller than the maximum you can put in the markets. That way when the market falls, you can increase that allocation and take advantage of the fall.

If you are already in the market, and were thinking about increasing your allocation, then I’d say there is no reason to increase your allocation just on the basis of this market rise alone. The time to increase allocation will eventually come, and you will be able to take advantage of that if you position yourself from now and be in a mindset that looks for crashes and downfalls.

If you were investing when the market were down and are sitting on profits now – good job, and I hope OneMint had a small part to play in it.

Radhika left the following message a few days ago, and I thought this was an interesting topic for a post.

Radhika March 18, 2014 at 5:06 pm [edit]

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]

Goldman Sachs is out with its new fund offer (NFO), Goldman Sachs CPSE ETF. The purpose is to facilitate the government’s initiative to reduce its shareholding in some of its public sector enterprises and thereby meet its revised disinvestment target of Rs. 16,027 crore. Though there is a lot of interest among the retail investors as far as this scheme is concerned, but when it comes to investing, there is a complete lack of interest from the distributors, brokers, government, Goldman Sachs itself and other service providers.

I think either they are not interested in retail investors participation or the groundwork has not been done in a systematic manner by any of them before launching this scheme. When it comes to handholding investors, I think nobody is interested.

Why is it so?

When it comes to taking active and responsible initiatives, the track record of our government has been very poor. We have witnessed such systematic failures earlier as well, with the RBI’s inflation indexed bonds and Rajiv Gandhi Equity Saving Scheme (RGESS). I think the government is interested only in meeting its disinvestment target this time or probably it is too busy campaigning for the general elections.

Goldman Sachs has very limited infrastructure to entertain investors’ queries. Also, very few number of distributors have been empanelled with them to make this channel successfully participate in their efforts. I called their toll free number 1800 266 1220 on many occasions in the last couple of days, but I never succeeded even once. I sent a mail also asking for the online/offline procedure to do this investment, against which I received the following response:

Dear Sir, 

With reference to your below mail please find the KIM cum Application Form for CPSE ETF. The demat  account is compulsory as the holding is in dematerialized mode only. Retail Individual Investors can invest in the Scheme with a minimum investment amount of `5,000/- (Rupees Five Thousand only) and in multiples of `1/- (Rupee One) thereafter. We would request you to refer the “Application Size for Determining Investor Category” section under page no. 5 of the attached KIM cum Application form for more details. You may also download the Scheme related other materials from our website www.gsam.in.

 http://www.goldmansachs.com/gsam/in/advisors/resources/literature/scheme-information-document/index.html

The NFO is available in NSE MFSS and BSE Star MF platform, you may invest online if your broker is providing these platforms.

Please note that the NFO period for retail investors is from 19th March’14 to 21st March’14, you may submit the duly filled application form at any of the NFO collection points as mentioned under page 15 & 16 of the attached KIM cum Application Form.

 For any further assistance please reach out to us on 1800 266 1220(toll free) or mail us [email protected]

Regards,

Client Service Team,

Goldman Sachs Asset Management (India) Pvt. Ltd

As the investors are feeling very much helpless, you must be wondering why you are not getting any phone calls or mails from your broker(s) and why there is no active participation from the mutual fund distributors either. The answer lies with this statement – “The Scheme shall not incur any distribution expenses and no commission shall be paid by this Scheme”. This statement I have picked from the Scheme Information Document (SID). From this statement, it is very much clear why intermediaries are not running after you.

Now, let’s check the important thing. How to invest in this CPSE ETF – online or offline?

Online Investment

First important thing is that you cannot hold CPSE ETF’s units in a certificate/physical form. You need to understand that as this fund is an exchange traded fund (ETF), you need to compulsorily have a demat account to invest in this fund during the offer period, and also to subsequently hold them when this fund gets listed on the stock exchanges. If you don’t have a demat account, it is very difficult to get it opened and invest in this scheme, all in a single day. But, you can still make some efforts and try your luck.

Though I don’t have the list of brokers which are providing online investment facility to invest in this scheme, one thing is clear to me that they are not actively marketing this product. As I am writing this post, I know Kotak Securities, Edelweiss, ICICI Direct and FundsIndia are providing this facility to their clients. As I have demat/trading accounts with Kotak Securities and Edelweiss and I am associated with FundsIndia Advisor as an independent investment advisor, I am going to explain their respective online investment procedures.

Kotak Securities – You need to first login to your Kotak Securities online platform. Click on the “Mutual Fund” tab on the top of the webpage, click on “Place an Order”, select your holding pattern, select fund house to be “Goldman Sachs Mutual Fund”, select either “CPSE ETF Retail” if your investment is Rs. 2 lakhs or below or “CPSE ETF HNI” if your investment is more than Rs. 2 lakhs.

Edelweiss Broking – With Edelweiss also, you need to login to their trading platform. Click on the “Mutual Fund” tab, click on the “Purchase” option, select “G S Asset Mgt(I) P Ltd” as the AMC, select “NFO Equity” as the category, select the series to be “Growth” and the scheme name to be “CPSE ETF”.

FundsIndia Advisor – If you are already registered with FundsIndia as an investor, you need to click on the “Invest” tab as you login to your online account. Click on the “New Investment” tab, click on the “Select Scheme” box, select “Goldman Sachs Mutual Fund” as the AMC, select NFOs from the scheme classification dropdown and click on ‘Search’. You will get “Goldman Sachs CPSE Exchange Traded Scheme – Growth” as the scheme.

Select the scheme, type the amount which you want to invest and click on ‘Continue’. Select your depository name as NSDL or CDSL, fill your DP ID, DP name and beneficiary/demat account no. and click on Save. You’ll be required to transfer the investment amount afterwards.

ICICI Direct – As KS and Sanjay confirmed to me yesterday, ICICI Direct is also providing online investment facility for this scheme. It is under the “Mutual Funds” tab on ICICI Direct’s platform and you need to select ‘NFO’ to reach to this scheme.

I could write about the online investment procedure of these service providers only. If any of you have anything to share about your broker’s process, please share it share and I’ll update it in this post.

Also, people who have online investment facility with their broker should look out for this scheme under the Mutual Fund section as well as under the IPO/NFO section, you never know under which section this scheme has been placed by your broker.

Offline Investment with a physical common application form

If your broker is not providing online investment facility, here is the process to invest in this scheme offline:

As it is clear that a demat account is compulsory to invest in this scheme, now you need to download a common application form to subscribe to its units. You need to duly fill this form with all the relevant details like the investor category, name of the applicant(s), his/her/their PAN number(s), date of birth, demat account details, address & contact details, status, occupation and bank details of the first/sole applicant.

There are certain important points which you need to pay attention to while filling this form:

Mode of Holding – The mode of holding for subscribing to these units should exactly match the mode of operation of the demat account as specified in the Depository Participant’s record. e.g. If you have a joint demat account in your and your spouse’s name, you being the first applicant, then only you should be the first applicant and your spouse the second applicant in this scheme.

Bank Account Details – While filling your bank account details, make it sure that you mention details of your bank account which is linked to your demat account.

Cheque/DD – Your investment cheque or demand draft should favour “CPSE ETF” and as always, must be account payee only. In order to protect yourself from fraud, you must mention your name (as the sole/first applicant) and application number on the back of the cheque/demand draft. In case you don’t find the application number on your form, you must mention your demat account details and PAN number along with your contact number.

Documentation – Retail individual investors are required to attach only two documents along with their application form and investment cheque/DD

(i) KYC compliant proof

(ii) Self-attested PAN card copy

Nominee – As there is no place to mention nominee details in the form, you need not panic about it. As with all your demat/electronic investments, the person who is registered as the nominee in your demat account will remain your nominee with this investment as well.

Investment above Rs. 2 lakhs – If you are investing more than Rs. 2 lakhs, then you’ll be considered as a non-institutional investor. You should tick your investor category accordingly in that case.

Investment for a Minor – Investment in the name of a minor is allowed in this scheme, but there should not be any joint investment in that case.

Where to submit your applications?

Once your application form is duly filled and the relevant documents are attached, you need to submit this form at any of the Investor Service Centres of Karvy Computershare. Here is the link to all those service centres along with their contact details – http://www.benchmarkfunds.com/gs/Documents/NFOCOLLECTIONPOINTS-CPSEETF.pdf

Even if your broker is not providing online or offline investment facility to you, you can call on the customer care number of your broker and ask for some kind of assistance in this matter. There is a possibility that your broker takes your request over the phone itself and applies for this scheme on your behalf subject to funds availability.

Lack of enthusiasm by the broker and the distributor community has once again proved that they don’t care about their clients and clients’ welfare. They still like to service only those products in which there are high commissions/incentives.

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]

CPSE ETF Further Fund Offer (FFO) – January 2017 Issue – Click Here

We are at the fag end of the current financial year and as always, the government is doing everything it can do to meet its revised target of garnering disinvestment proceeds. It had set a highly ambitious target of raising Rs. 40,000 crore from disinvestment in the beginning of this financial year, but then curtailed it by more than 50% to Rs. 16,027 crore last month in February 2014. I hope it doesn’t fail in its efforts to meet even this revised target.

Before we move forward to know more about our target subject, we need to have some basic understanding of a new index, called CPSE Index, which has been launched by the National Stock Exchange (NSE) and owned & operated by India Index Services & Products Limited (IISL).

NSE CPSE Index

NSE today launched CPSE Index, in which CPSE stands for central public sector enterprises. As the name suggests, this index comprises of some of the big public sector enterprises and here you have the list of those companies.

CPSE Index Composition as on February 28, 2014 & Trade Data as on March 19, 2014

CPSE Index has been launched for a specific purpose and the purpose is to facilitate Government of India’s initiative to sell its stake in some of these CPSEs. In fact, the finance ministry wants to raise an additional Rs. 3,000 crore for its disinvestment programme this financial year and it will be using this CPSE ETF to garner its targeted amount.

CPSE Index has base date of 1st January, 2009 and base value of 1,000. As mentioned above, this index got launched today and stood at 1,898.10 by the end of today’s trading hours. The weights of its constituents will be re-aligned every quarter effective 2nd Monday of February, May, August and November every year.

Goldman Sachs CPSE Exchange Traded Fund (ETF)

Goldman Sachs CPSE ETF is an open-ended index scheme, to be listed on the stock exchanges in the form of an Exchange Traded Fund (ETF) tracking the CPSE Index. This ETF has been launched by Goldman Sachs Asset Management Company Limited and is named as Goldman Sachs CPSE ETF. It is also known as the PSU ETF.

The government of India has authorised only Goldman Sachs to launch this ETF. I would call it GS CPSE ETF or just CPSE ETF for the rest of this post.

Anchor investors have already invested Rs. 850 Crore in this ETF today, so this scheme would require another Rs. 2,150 crore to meet its targeted amount.

Out of the proceeds collected during the NFO period, this scheme intends to purchase the CPSE shares, as represented in the constituent companies of the CPSE Index, in similar composition and weightages as they appear in the CPSE Index. The President of India, represented through different departments and ministries, will sell the shares at a discounted rate to the scheme and the mutual fund will in turn create and allot units of the scheme to its investors.

Subsequently, after the closing of the NFO, the units will get listed on the stock exchanges in the form of an ETF tracking the CPSE Index.

Investment Objective – The scheme intends to generate returns that closely correspond to the total returns earned by the securities as represented by the CPSE Index. However, the performance of the scheme may differ from that of the CPSE Index due to tracking error and also due to scheme expenses.

NFO Opening & Closing Dates – For the non-anchor investors, this fund will open for subscription from tomorrow i.e. March 19th and will run for three days to close on March 21st.

Features of GS CPSE/PSU ETF

Reference Market Price/NAV – New Fund Offers, or popularly known as NFOs, normally get launched at Rs. 10 per unit as their NAV. This will not be the case with this scheme. During the NFO, each unit of this scheme will have a face value of Rs. 10 and will be issued at a premium, equal to the difference between the face value and the allotment price.

NAV of this scheme will be based on the CPSE Index, as the allotment price would be approximately equal to 1/100th of the CPSE Index and would be calculated post adjusting the 5% discount offered by the government to CPSE ETF for buying the underlying CPSE Index shares.

Going by the CPSE Index’ closing value of 1898.10 today, the allotment price of this scheme should get fixed at around Rs. 18 per unit once the allotment gets done. So, if you decide to invest Rs. 1.80 lakh in this scheme, you will be getting approximately 10,000 units of GS CPSE ETF.

5% Discount for Investors – Investors making an investment during the offer period will be given a 5% discount on their investment. This 5% discount on the “Reference Market Price” of the underlying CPSE Index shares will be offered to CPSE ETF by the government of India.

1 Loyalty Unit for Every 15 Units Held – Sops don’t stop with just 5% discount. The investors, who remain loyal to this scheme and hold on to their investments for one year from the date of allotment, will be allocated 1 additional unit for every 15 units held on the record date in March/April 2015. Record date will be determined as the date falling exactly one year from the date of allotment.

Loyalty units would be credited to the demat account of the eligible investors within 30 days from the record date. Non-retail investors will not be offered loyalty units under this scheme.

3.5% Dividend Yield – Based on the dividend paying pattern of these CPSEs, the dividend yield works out to be in the range of 3.5% to 3.8%. Though I do not give much weightage to dividend yield for my personal investments, I think a healthy dividend yield of 3.8% reflects that there is reasonable margin of safety with these companies and downside in their market prices is fairly limited.

10.5X PE Ratio – Price to earnings ratio (P/E Ratio) of CPSE Index is ruling at around 10.5 times these days, which is a steep discount to its historical averages and also a steep discount to Nifty’s P/E multiple of approximately 18.2. This makes CPSE ETF quite attractive from valuations point of view.

Minimum/Maximum Amount to be Raised – The scheme seeks to collect a minimum target amount of Rs. 100 Crores during the NFO Period. Maximum amount to be raised stands at Rs. 3,000 Crores, beyond which the money will be returned back to the investors.

Minimum/Maximum Investment Size – Retail individual investors can invest in the scheme with a minimum investment amount of Rs. 5,000. To remain a retail investor, the investment limit has been set at Rs. 2 lakhs.

Listing – Goldman Sachs has obtained an in-principal approval of NSE and BSE for listing the units of this scheme and the listing would be carried out by the fund house on or before 11th April, 2014.

Demat Account Mandatory – As this is an ETF, the units of the scheme will be available only in the dematerialized/electronic mode. So, you have to mandatorily have a demat account to own its units. Applications without relevant demat account details are liable to be rejected.

Tax Saving u/s. 80CCG – GS CPSE ETF is in compliance with the provisions of Rajiv Gandhi Equity Savings Scheme (RGESS) and thus qualifies for a tax exemption up to Rs. 25,000 under section 80CCG.

As many of you would know, to avail tax benefit u/s. 80CCG, there are two most important conditions. One, your gross total income should not exceed Rs. 12 lakh mark and second, you must be a first time investor in equities. Though it is quite difficult to satisfy both these conditions simultaneously, people who fulfil both these conditions should actually avail tax benefits with this scheme.

Lock-In Period – 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 31st next year i.e. 2015.

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, 2015 till March 31, 2017.

There is no lock-in period applicable for those investors who don’t avail any tax benefit. But, then it is advisable to hold on your investment for one year in order to get loyalty units.  

Entry & Exit Load – There is neither any entry load nor any exit load with this fund.

Categories of Investors & Allocation Ratio

Anchor Investors – 30% of Rs. 3,000 Crores i.e. Rs. 900 Crores

Non-Anchor Investors, including Retail Individual Investors, Qualified Institutional Buyers (QIBs) & Non Institutional Investors – 70% of Rs. 3,000 Crores i.e. Rs. 2,100 Crores

As the anchor investors have already poured in Rs. 850 crore, the leftover pie of Rs. 2,150 crore will be available for the retail individual investors, qualified institutional buyers (QIBs) and non-institutional investors.

Fund Manager – This scheme will be managed by 33-years old Payal Kaipunjal, who is an MBA from Wellingkar Institute of Management and also a Financial Risk Manager (FRM) from GARP University. She has a total experience of 9 years and worked with Benchmark Asset Management Company before it got acquired by Goldman Sachs India in 2011.

She has been working with Goldman Sachs since August 2011 and has been managing GS Junior BeES, GS PSU Bank BeES and debt securities portfolio of GS Hang Seng BeES.

Risks

High Exposure to Energy Sector – CPSE Index has an exposure of approximately 59% to the energy sector, with stocks like ONGC, GAIL, Oil India and Indian Oil. So, if not exactly a sector fund, this ETF is highly tilted towards the energy sector.

High Exposure to Public Sector Managements – We all have been hearing of policy paralysis for a very long time now. All these companies are public sector enterprises, in which we all know how policies get framed out and implemented, how things get executed and how good their managements are. So, despite of cheap valuations, it is a big risk if things don’t move as expected.

Passive Management – ETFs are passively managed funds and their performance largely depends on the index they track. As GS CPSE ETF will track the CPSE Index, its performance will completely hinge on the performance of the constituents of CPSE Index. So, in case there is trouble with any of these companies, the fund management will not be able to sell that particular stock till the time the stock moves out of this index.

Final Take

CPSE Index constituents have risen 8.91% in the last 30 days, while they have given a negative return of 2.44% in the past one year. Going by the valuations of these CPSEs and the number of sops this ETF will offer to its retail investors, I think it is giving a great opportunity to the long-term conservative equity investors, who still have a belief that the future holds some kind of promise or scope of improvement for these CPSEs and still have some kind of faith in the policy execution of the next government.

Personally, I would like to invest some part of my money into this ETF as I think most of these CPSEs are quoting at a steep discount to their life time highs and also to their historical average PE multiples. Though the stock prices of these CPSEs have run up quite rapidly in the last month or so, I still think there is enough value in these companies.

Also, I am hopeful of a strong government taking charge at the centre as the election results get announced in May. I think a strong, decisive government can have a dramatic effect on the sentiment driving the stock prices of these CPSEs.

Also, as a human nature, discounts and freebies attract me as well. I think 5% discount and a bonus unit after one year of investment are reasonably good attraction triggers for me.

Investors, who do not have a demat account and wish to save tax under section 80CCG, will have only 3 working days for them to get a new demat account opened in compliance with the provisions of Rajiv Gandhi Equity Savings Scheme and invest in this scheme. So, please hurry and avail the benefits of this scheme.

KIM & Application Form of Goldman Sachs CPSE Exchange Traded Fund

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]

India Infoline Housing Finance Limited (IIHFL), which came out with its first public issue of secured non-convertible debentures (NCDs) in December, has decided to launch another such issue from tomorrow, 12th of March. The company offered 11.52% per annum as the interest rate to raise Rs. 500 crore in December and wants to raise another Rs. 200 crore from this issue with a higher rate of interest of 12% per annum.

The issue is scheduled to close on March 24, but going by the size of the issue, the response it got for its last issue and a fairly attractive interest rate of 12% p.a. payable monthly, I think it should get oversubscribed in a very short period of time, probably in a day or two. One thing which has left me disappointed is that these NCDs are unsecured in nature, whereas NCDs issued last time were secured.

Before we check how the issue looks from an investment point of view, let’s take a look at some of its key features:

Interest Rate on Offer & Effective Yield – Like last time, the structure of this current issue is fairly simple. The company has decided to offer 12% p.a. payable monthly for a tenure of six years, as compared to 11.52% p.a. it offered last time for five years.

This issue also offers to double your investment amount in the same time period, if the investor decides to go for the cumulative option. With the cumulative option, the effective yield works out to be approximately 12.25% p.a., whereas the same stands at approximately 12.68% p.a. with the monthly interest option.

Credit Rating & Size of the Issue – CRISIL and ICRA have been appointed as the credit rating agencies for this issue and both have rated the issue as ‘AA-’ with a ‘Stable’ outlook. IIHFL wants to raise Rs. 200 crore from this issue, including the green shoe option of Rs. 100 crore.

Foreign Portfolio Investment – Non-Resident investors, including NRIs, QFIs and FIIs, are not eligible to invest in these NCDs.

Categories of Investors – The company has decided to categorise investors in the following three categories:

Category I – Qualified Institutional Bidders (QIBs) – 30% of the issue is reserved

Category II – Non-Retail Investors including HNIs, HUFs, Corporates etc. – 10% of the issue is reserved

Category III – Retail Investors, including HUFs, investing Rs. 10 lakh or below – 60% of the issue is reserved

Allotment on First Come First Serve Basis – Allotment will be made on a first come first served (FCFS) basis.

Minimum Investment – An investor needs to invest a minimum of Rs. 10,000 in this issue i.e. 10 NCDs worth Rs. 1,000 each.

Listing – The company has decided to list its NCDs on the National Stock Exchange (NSE) as well as on the Bombay Stock Exchange (BSE) and as always, the company will ensure that these NCDs get listed on the exchanges within 12 working days from the closing date of the issue.

Liquidity & Demat A/c. – As these NCDs will get listed on the stock exchanges, its investors will have the option to sell them whenever they want or have any urgent cash requirement. But, it is not mandatory to have a demat account to invest in this issue. You can subscribe for these NCDs in physical form as well, like you invest in bank/corporate fixed deposits (FDs) or post office schemes.

Interest Payment Date – IIHFL has decided to pay interest on the investors’ money on a monthly basis, but has not fixed the date of interest payment as yet. Interest payment will start from one month after the deemed date of allotment and will keep on getting paid on the same date every month.

Past Performance of India Infoline Housing Finance Limited (IIHFL) NCDs

I had reviewed IIHFL’s profile and financials when I covered its last issue in December. As the company has not updated its latest financial results in the prospectus filed for this issue, I have not been able to review its December quarter results. If you want to check its results up to September 2013, you can check the December post.

So, as there is nothing new on the financials front, let us focus on the performance of its NCDs issued last time around. Price of its already listed NCDs hit a 52-week high of Rs. 996.70 and a 52-week low of Rs. 899.90. It closed at Rs. 968.84 on the NSE today, which I would say is a steep discount to its face value of Rs. 1,000.

The company pays the due interest for its already listed NCDs on 27th of every month and the record date for the same falls due on 17th of that month, which means these NCDs go “ex-interest” two trading days prior to that. So, its current price of Rs. 968.84 already carries some portion of its current month’s interest also.

Though I think 12% annual rate of interest is fairly attractive, the nature of its current NCDs to be unsecured and the performance of its NCDs issued last time make me feel that it is better to avoid this issue at present and wait to buy these NCDs later from the stock exchanges when they get listed.

A long term investor, who is not liable to pay any taxes, wants regular income on a monthly basis and carries a little risk appetite, can subscribe to this issue as I think this issue looks relatively attractive to me as compared to its last issue.

Application Form of IIHFL NCDs

Note: As per SEBI guidelines, ‘Bidding’ is mandatory before banking the application form, else the application is liable to get rejected. For bidding of your application, any further info or to invest in IIHFL NCDs, you can contact me at +919811797407