The ETF gives investors an opportunity to take exposure to the India story through 22 fundamentally-strong companies, at a reasonable cost
Finance minister Arun Jaitley on August 04, 2017 had announced the launch of Bharat 22 ETF. Here is why Bharat 22 ETF should be a part of every financial portfolio.
Take part in India’s growth story: BHARAT 22 ETF consists of 22 stocks of Central Public Sector Enterprises (CPSEs), Public Sector Banks (PSBs) and strategic holdings of Specified Undertaking of the Unit Trust of India (Suuti). These names are largely leaders in their respective categories with robust fundamentals and stand to gain from the various reforms and initiatives of the government like financial inclusion, digital and cashless economy, goods and services tax (GST), infrastructure reforms, Make in India and direct benefit transfer of subsidy. The sectors have been selected keeping in mind the sectoral reforms in each of them, which have had direct impact on the valuations of the stocks.
Diversify your investment: The exchange traded fund (ETF) is not restricted to any particular theme and is spread across six sectors sectors like industrials, energy, utilities, finance, FMCG and basic materials. The index blends sectors with secular growth prospects (FMCG and utilities), and cyclicals (energy, metals, industrials). This can help reduce volatility and improve long-term investor returns. As a means to ensure diversity is maintained, the weightage of each stock is capped at 15% and the sectoral exposure limit is set at 20%. Almost 92% of the portfolio comprises of large-cap stocks along with some high-quality mid-caps and small-cap stocks which form the remaining 8%.
Invest at a low cost: Although ETFs are mutual funds, they are liquid in nature as they are traded on the stock exchange. Given that Bharat 22 ETF will have one of the lowest expense ratios in the industry; this ETF provides a cheap and easy way to access the India growth story.
Invest to generate better returns: Although the Bharat 22 ETF is new, back-tested returns show that this index has outperformed the S&P BSE Sensex and Nifty 50 across varying time frames. Since March 2006 (last 10 years), the S&P BSE Bharat 22 Index delivered a return of 12.9 %, while the Sensex returned 9.2%. Also, the dividend yield offered by this index is higher at 2% (FY 2016-17) compared to 1.3% offered by the S&P BSE BSE Sensex, which adds to your overall returns. Furthermore, there is a high chance that the government may offer a discount during the New Fund Offer of BHARAT 22 ETF.
To sum up, it presents an investor with the opportunity to take exposure to the India story through 22 fundamentally-strong companies, at a reasonable cost. The beauty of this basket of PSUs and Suuti is that the investor will not be in for surprises as each of these businesses focus on area of specialty with little room for divergence.
The writer is CFP, CWM, CIWM, CPFA, managing director - Optima Money Managers Pvt Ltd
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