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

by Shiv Kukreja on January 18, 2017

in IPO/NFO

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 skukreja@investitude.co.in

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 skukreja@investitude.co.in

{ 61 comments… read them below or add one }

TCB January 18, 2017 at 8:49 AM

Dear Shiv,
This article has indeed cleared a lot of doubts. You deserve a lot of appreciation for this. However, I have one more querry –
As in case of other mutual funds, is there a “Direct” plan and “Regular” plan for CPSE ETF ? If yes, are there different NAVs / prices for “Direct” and “Regular” plans ? From where can we get the historical NAVs / prices for “Direct” and “Regular” plans ?
Thanks
TCB

Reply

Shiv Kukreja January 18, 2017 at 12:30 PM

Thanks TCB!
As this is an Exchange Traded Fund, there cannot be 2 different NAVs for it. So, it doesn’t really matter whether you invest directly or through an intermediary, it would in no way affect your investment returns.

Reply

Rohit Modi January 18, 2017 at 9:38 AM

Hi Shiv,
If one is applying for 5000 units how much amount must be debited to bank account ??
Has any allotment price got fixed ?
@ CMP of Rs 26.59, 5000 units means Rs 132950. How much amount will get blocked in Bank account ?

Reply

Amlan Basak January 18, 2017 at 12:28 PM

I used the Reliance MF online portal where I had an account.
There it took the input not in terms of Units but in Total Amount.

Reply

Shiv Kukreja January 18, 2017 at 12:53 PM

Thanks Amlan for your inputs!

Reply

Shiv Kukreja January 18, 2017 at 12:49 PM

Hi Rohit,
Allotment price of the units of this ETF is not fixed as yet. So, you need to mention the exact amount you want to invest. As correctly mentioned by Amlan, there is no choice of opting for units of this ETF. One should fill any amount in between Rs. 1,30,000 and Rs. 1,40,000 in case he/she wants to apply for 5,000 units.

Reply

PRIYA January 18, 2017 at 12:11 PM

excellent article. Very informative

Reply

Shiv Kukreja January 18, 2017 at 12:51 PM

Thanks Priya!

Reply

Amlan Basak January 18, 2017 at 12:26 PM

I was looking for an online platform to invest in this FFO and got that info from your post.
Thank you so much Shiv for this timely post! 🙂

Reply

Shiv Kukreja January 18, 2017 at 12:52 PM

Oh great! You are welcome Amlan! 🙂

Reply

rajaraman s January 18, 2017 at 2:43 PM

Pl update L&T Finance NCD series N3 ISIN INE523E07442 maturing on 17th Jan 2017 whether amount credited in bank account or by when

Rajaraman S

Reply

Shiv Kukreja January 18, 2017 at 2:47 PM

Hi Rajaraman,
Please contact Link Intime, Mumbai office for your L&T Infra Bond related queries – http://linkintime.co.in/website/ContactUs.aspx

Reply

Narender Kumar January 18, 2017 at 7:19 PM

Hi Shiv,
Please clear me, is I am eligible for RGESS deduction under section 80 ccg if I subscribe for this ffo.
l have mutual funds units in physical form and thought I have demat account from last one year but not purchased any share, mutual fund or derivative through my demat account. Can I will be considered new investor under the provision of RGESS. Secondly what is the meaning of flexible lock in period and is it mandatory for investors to invest for three years to claim deduction.
Thanks and Regards.

Reply

Shiv Kukreja January 18, 2017 at 7:36 PM

Hi Narender,
You are not eligible for Section 80CCG tax exemption as you are not a first time equity investor. You already have investments in equity mutual funds.

Reply

Umesh January 21, 2017 at 4:29 PM

Dear Sir,
However I am not first time investor, the current issue is FFO. Still you firm your opinion?

Reply

Umesh January 21, 2017 at 4:34 PM

It means investor would get benifits of such scheme only once in his/her life time? IsEverytime investor need to open a new Demat account?

Reply

Umesh January 21, 2017 at 4:17 PM

Please refer CDSL/NSDL web for your eligibility.
https://www.cdslindia.com/investors/rgessverification.aspx

Reply

Shiv Kukreja January 21, 2017 at 7:15 PM

Hi Umesh,
As you mentioned, you already have investments in mutual funds in physical form, so you are not a first time equity investor and that makes you ineligible for 80CCG tax exemption.

Reply

Narender Kumar January 18, 2017 at 8:24 PM

Thanks you very much Shiv for this prompt reply. l have one more doubt regarding deduction available for NPS subscribers under section 80 ccd ( 1b ).
I am a salaried employee and already exhausted my limit of 1,50,000 under section 80 c by investing in ppf and elss. My employer deducted 10% of my basic pay and da and contributed that in tier 1 account which is nearly comes out Rs. 4500/- on monthly basis . My question is that monthly contribution is eligible for deduction under section 80 ccd ( 1b ) or I need to invest other 50,000/- to claim deduction. Thanks and Regards.

Reply

Shiv Kukreja January 18, 2017 at 8:31 PM

Hi Narender,
You need to invest an additional Rs. 50,000 to claim tax exemption u/s 80CCD (1B).

Reply

Ravi January 19, 2017 at 12:12 AM

Good Article, got what I was looking for

Reply

Shiv Kukreja January 19, 2017 at 12:03 PM

Great, thanks Ravi!

Reply

Neeraj January 19, 2017 at 1:27 AM

Thanks Shiv for this informative article . I just wanted to check if there is a exit load for this ETF like the equity funds or not ?

Reply

Shiv Kukreja January 19, 2017 at 12:05 PM

Thanks Neeraj!
There is no exit load with this ETF. Please check this post – http://www.onemint.com/2017/01/16/cpse-etf-further-fund-offer-ffo-january-2017-issue/

Reply

harinee January 19, 2017 at 10:24 AM

Shiv
Any idea on the subscription % till now? Do u see oversubscription?

Thanks
Harinee

Reply

Shiv Kukreja January 19, 2017 at 11:49 AM

Hi Harinee,
No idea on subscription status as yet, but I strongly feel it should get a healthy oversubscription.

Reply

uday dhami January 19, 2017 at 1:50 PM

hi! Shiv,

i have done share purchase and sales from my demat a/c.
but till now i hv not invested in
Mutual Fund , can i get 80cc benifit in applying
CPSE ETF FFO. if yea, pl. guide me.
thanks

Reply

Shiv Kukreja January 20, 2017 at 10:51 AM

Hi Uday,
No, you are not eligible for 80CCG tax exemption.

Reply

Jignesh M. Shah January 20, 2017 at 12:04 AM

Hi,

By when one can expect allotment ? Also since it is already listed, can one sell it as soon as it gets credited to one’s demat account ?

Regards

Jignesh M. Shah

Reply

Shiv Kukreja January 20, 2017 at 10:53 AM

Hi Jignesh,
1. You can expect allotment on or before February 6 and allotment on or before February 10.
2. Yes, you can sell anytime after allotment & listing.

Reply

Jignesh M Shah January 20, 2017 at 12:23 PM

Thanks.

Reply

TCB January 20, 2017 at 6:38 AM

Dear Shiv,
Is it necessary to attach copy of PAN Card, Client Master of Demat Account and KRA Compliance print-out with the form ? Or just writing these details in the form is sufficient ?
Any other documents to be attached ?
Thanks
TCB

Reply

Shiv Kukreja January 20, 2017 at 10:57 AM

Hi TCB,
It is necessary to attach PAN proof and any one of these – Client Master List (CML), Holdings Statement or Cancelled Delivery Instruction Slip (DIS).

Reply

Rohit Modi January 20, 2017 at 10:59 AM

Can HUF apply through its own PAN number ?

Reply

Shiv Kukreja January 20, 2017 at 1:00 PM

Hi Rohit,
Yes, HUFs can apply for this ETF.

Reply

TCB January 20, 2017 at 7:17 PM

Dear Shiv,
When can we get some idea about the subscription ? Please let us know as soon as you get any information.
Thanks
TCB

Reply

Shiv Kukreja January 21, 2017 at 12:21 AM
TCB January 21, 2017 at 7:27 AM

Dear Shiv,
As suggested in the article, is the final retail subscription just Rs. 1000 crores, against reserved quota of Rs. 4200 crores ?
Thanks
TCB

Reply

Shiv Kukreja January 21, 2017 at 7:20 PM

Hi TCB,
I don’t think Rs. 1,000 crore is the final figure for retail subscription. Subscription was allowed till 12 p.m. yesterday and that makes me believe retail nos. should be higher than Rs. 1,000 crore.

Reply

Hardik January 21, 2017 at 9:07 AM

Hi
Reliance MF person told me if your KRA ,CKYC done with broker then no need to attach any prrof along with form. Is it true?

Reply

Shiv Kukreja January 21, 2017 at 7:23 PM

Hi Hardik,
Yes, that’s right! If you have undergone KYC with your broker for mutual fund investments, then there is no need for a fresh KYC.

Reply

Umesh January 21, 2017 at 4:10 PM

I already have Demat Account wef Apr 13 and first rgess investment in May2013. Is eligible for getting 5% discount and benifits under IT Act presently, if i subscribed CPSE ETF 201?

Reply

Shiv Kukreja January 21, 2017 at 7:37 PM

Hi Umesh,
Former Finance Minister P Chidambaram in Budget 2013 extended the RGESS tax exemption for three successive years. So, if you availed your first tax exemption in FY 2013-14, then probably you cannot avail it this year. However, please consult your tax advisor for the same.

Reply

TCB January 21, 2017 at 5:53 PM

Dear Shiv,
Is the 5% discount only for Retail investors ? Can you please re-confirm this, as I could not find this written in the brochure.

Instead, in paragraph titled “Discount Offered by GOI to FFO of the Scheme”, the following is written :
“A discount of 5% on the “FFO Reference Market Price” of the underlying shares of Nifty CPSE Index shall be offered to FFO of the Scheme by GOI.
………..
The purchase from GOI would be out off the FFO Proceeds received by the Scheme towards Subscription of its FFO Units by ALL the category of Investors.”

According to my understanding, the above sentences indicate that purchase of shares from GOI at 5% discount will be from the proceeds of subscription by ALL categories of investors. Therefore, all investors would get the units at discounted price.

Is my understanding correct ?
Thanks
TCB

Reply

Shiv Kukreja January 21, 2017 at 6:23 PM

Hi TCB,
You are right, the government has offered 5% discount to all categories of investors, and not just the retail investors. Just reconfirmed it from this link – http://pib.nic.in/newsite/PrintRelease.aspx?relid=157562

Apologies for the inconvenience caused, if any. However, retail investors investing not more than Rs. 2 lakhs will get preference in allotment over other categories of investors.

Reply

Jay January 23, 2017 at 12:51 PM

Hello Shiv
This cleared many doubts. What I want to know more is if these are similar to Mutual fund at time of closure? Can they be exit like a MF,, or will have to be sold as shares do? Thanks

Reply

Shiv Kukreja January 23, 2017 at 1:33 PM

Hi Jay,
It is like share, you will have to sell it on any of the stock exchanges.

Reply

Vanita Samat January 25, 2017 at 11:55 AM

Hello Sir,
In the past ,whenever i have applied for IPO etc using ASBA it showsup as funds blocked in my account online.
But in case of CPSE it shows as an actual withdrawal towards CPSE
Why is that ?
What does it mean? That i am surely getting worth the amount i applied for?

Reply

Shiv Kukreja January 25, 2017 at 7:11 PM

Hi Vanita,
With CPSE ETF, ASBA was facility was not available. So, funds were required to be paid upfront. Going by the subscription numbers, I think retail investors should get full allotment.

Reply

Vanita Samat January 27, 2017 at 3:47 PM

Thank you!

Reply

Shiv Kukreja January 27, 2017 at 5:03 PM

You are welcome Vanita!

Reply

Sesha January 27, 2017 at 2:36 PM

Hi Shiv,

Very comprehensive write up, well done.

I have a question: As the full application money is debited from my bank account on date of applying, will any refund of excess money (arising out of lower than number applied / oversubscription) get interest as the allotment is likely to take 10 days from date of closure of the issue?

Appreciate you input.

Reply

Shiv Kukreja January 27, 2017 at 5:02 PM

Thanks Sesha,
No interest will be paid on your application money, whether you get partial or full allotment.

Reply

Hardi January 29, 2017 at 9:33 AM

Hello sir
Still confused regarding talk in town.
1. People are saying ALONG with form Client master and pan card is must attached proof. If you dont attached you will not getting allotment. Though i have ckyc & kra done with my broker will alloted ot not?

Reply

Amlan Basak January 30, 2017 at 10:44 PM

Just to update you all:
I have got the allotment advice today in CPSE ETF FFO.
Got the full allotment. 🙂

Reply

Jignesh M. Shah January 30, 2017 at 10:51 PM

When can I sell it ?

Reply

Umesh January 31, 2017 at 7:48 AM

Allotment @ Rs. 25.2141 per unit.

Reply

Sudip February 19, 2017 at 11:19 PM

Sir,
I have invested rs10000 in cpse etf reliance ffo by opening new demat.
Shall i be automatically able to claim 80ccg benefit now or i have to fill up any form etc. Please clarify. Sudip

Reply

Shiv Kukreja March 9, 2017 at 2:22 PM

Hi Sudip,
You will not get the benefits of 8CCG automatically. You need to contact your broker to get your demat account RGESS compliant. Also, you need to be first time equity investor to claim deduction u/s. 80CCG.

Reply

natarajan March 11, 2017 at 9:36 PM

what is meant by 3-in-1 account holders can invest in CPSE ETF FFO 2.

Reply

LIBERT LEWIS March 15, 2017 at 1:37 PM

My trying to apply for CPSE ETF which opened for retail investors today. While I was trying to apply through my Demat Account, the floor price is shown as Re.1/-.

I want to invest minimum amount of Rs.5,000/-. I am confused about filling the columns like, number of units applied for, and the price band. Please advise.

Reply

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