Bharat 22: An Investment Opportunity in Public Sector Units

Bharat 22 is an Exchange Traded Fund (ETF) announced by the Government of India  as part of disinvestment scheme.  Through Bharat 22 government proposes to offer investment opportunity in 22 public sector units (PSU) from 6 segments.  Success of the earlier launched CPSE ETF has prompted the government to offer a portion of the holding in the PSU for meeting the disinvestment target through the investment vehicle Bharat 22. 

What is a Mutual Fund? 

Mutual Fund is a familiar term for you. It is an investment scheme for retail investors who desire to invest in equities, but do want to reduce the risks associated with direct investment in equities. Direct investment requires lot of research and continuous engagement in following up the market and companies.  Mutual funds mobilise amounts from individual investors, creates a pool and invest in equity market. Investors are allotted units in proportion to their investments. They manage the investments on behalf of individual investors by charging a nominal fee. As the value of underlying shares increases, the value of units also appreciates. 

What is an Exchange Traded Fund (ETF)?

There are many types of mutual fund schemes. They are categorized based on the underlying investments.  Mutual funds invest in shares, corporate bonds, government securities or in a combination of these.   In an Exchange Traded Fund, the portfolio of the mutual fund scheme contains same shares in same ratio as contained in an index. Comparison of returns of an ETF scheme against an index is the method adopted for measuring   the performance.   The ETF scheme will be listed in stock exchanges and an investor can purchase units from stock exchanges too at then prevailing NAV, just like equity shares.  

More about Bharat 22….

Government has identified twenty two companies from six diverse sectors. The companies are from  sectors  basic materials, finance,  FMCG, energy, industrials and utilities. Shares of SBI, Indian Oil, Coal India, Bank of Baroda, SJVN and Bharat Electronics are some of the major companies that will find place in Bharat 22. Some of these companies possess Maharatna, Navratna or Miniratna status. It will also contain a portion of the holding of government in Specified Undertaking of Unit Trust of India (SUUTI). 40% of SUUTI consists of shares of  Larsen and Toubro, Axis Bank and ITC.  

ICICI Prudential AMC will manage the Bharat 22 scheme. It will be benchmarked against an index to be maintained by Asia Index Private Ltd , a joint venture of  BSE and S& P Global.  The index will be rebalanced once per year.
The recently launched scheme of CPSE ETF is managed by reliance Nippon Life AMC. It was launched to disinvest a portion of government holdings in four Maharatna companies and six Navratna companies. 

Why is Bharat 22 important for government?

The success of CPSE ETF has proved  that  ETF mechanism is one of the best  and efficient systems for government to meet disinvestment target. Proceeds received by paring down the investment in PSUs help the government to meet its disinvestment targets.  Though the process can be equated to selling a portion of assets in possession, it will help government to keep fiscal deficit under control. The aim of government is to mobiles not less than Rs. 11,500 crores through ETF route. 

This method makes all stake holders happy. Government earns money, investors a portion of PSUs and employees still enjoy the status of working with a PSU as only 3-4% of shares of each company are sold.  By mixing some of the best performing companies with not so good companies, government is ensuring good price for all companies. 

What benefits can an investor expect from Bharat 22?

To attract retail investors, government may offer discounts or bonus units. Bharat 22 offers a good opportunity to invest in twenty two public sector units.  It may, however, be noted that Bharat 22 ETF carries all risks associated with investments in equity as the fund investments  in the shares of PSUs. It may also be remembered that the units will be listed on stock exchanges and an investor can purchase units from there too at market discovered NAV. Maharatna,Navratna and Miniratna Companies- Updated List

 

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