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Bharat-22

Bharat 22 is the second Exchange Traded Fund (ETF) that will be launched by the Union Finance Ministry (first was CPSE ETF’s 10). It comprises 22 stocks including those of central public sector enterprises, PSU banks and holdings under the Specified Undertaking of Unit Trust of India.

Bharat 22 is a well diversified ETF spanning six sectors — basic materials (4.4%), energy (17.5%), finance (20.3%), industrials (22.6%), FMCG (15.2%) and utilities (20%).

The ETF will also include some of the government’s holdings in SUUTI (Specified Undertaking of Unit Trust of India). In fact, the SUUTI heavyweights (L&T, ITC and Axis Bank) have a 40 per cent weight on the index. Other big names in the long roster include SBI, Power Grid, NTPC and ONGC (5 to 9 per cent each). Tail-enders include NALCO, Indian Oil, Coal India, Bharat Electronics, Bank of Baroda, NBCC (India), Indian Bank and SJVN. The Bharat 22 ETF will be managed by ICICI Prudential AMC while Asia Index will be the index provider. The index will be rebalanced annually.

The new ETF will help the government sell equity stakes in state-run firms and move it further along in its objective to raise Rs 72,500 crore through disinvestment in the current financial year 2017-18.

What is ETF?

Exchange Traded Funds are essentially Index Funds that are listed and traded on exchanges like stocks.
These funds mainly track an index, a commodity, or a pool of assets.
They have the following advantages over mutual funds and equity/debt funds:
1. Lower Costs: An investor who buys an ETF doesn't have to pay an advisory/management fee to the fund manager and taxes are relatively lower in ETFs.
2. Lower Holding Costs: As commodity ETFs are widely traded in, there isn't any physical delivery of commodity. The investor is just provided with an ETF certificate, similar to a stock certificate.

Difference between Bharat 22 and CPSE ETF’s 10

While CPSE ETF has only state-run companies as its constituents, Bharat-22 will give the government a shot at selling stakes in some of the private sector blue-chip companies as well, as it will include some holdings of SUUTI (Specified Undertaking of Unit Trust of India).

Why is it important?

The ETF mechanism has proven to be a smart, effective way for the government to help meet its disinvestment targets, a key factor to keep fiscal deficit under control. Earlier, when the government set out to monetize the family silver by selling big stakes in individual PSUs, the stocks would invariably get beaten down in the run-up to the offer and also attract employee ire. The ETF route provides a neat workaround by letting the government pare small stakes (2-3 per cent) in a big basket.

Practice question:

1. Which of the following company has launched S&P BSE Bharat 22 Index to track the performance of select state-run companies in which the central government has divested its stake?

a) ICICI AMC

b) Asia Index Pvt Ltd

c) SUUTI

d) None of the above

Ans: b

 

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