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
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?
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.
Thank you!
You are welcome Vanita!
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
Hi Jay,
It is like share, you will have to sell it on any of the stock exchanges.
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
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.
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?
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.
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?
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.
CPSE ETF oversubscribed 2-times, gets bids worth Rs 12,000 crore – http://economictimes.indiatimes.com/markets/stocks/news/cpse-etf-oversubscribed-2-times-gets-bids-worth-rs-12000-crore/articleshow/56690290.cms
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
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.
Dear Shiv,
When can we get some idea about the subscription ? Please let us know as soon as you get any information.
Thanks
TCB
Can HUF apply through its own PAN number ?
Hi Rohit,
Yes, HUFs can apply for this ETF.
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
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).
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
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.
Thanks.
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
Hi Uday,
No, you are not eligible for 80CCG tax exemption.
Shiv
Any idea on the subscription % till now? Do u see oversubscription?
Thanks
Harinee
Hi Harinee,
No idea on subscription status as yet, but I strongly feel it should get a healthy oversubscription.
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 ?
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/
Good Article, got what I was looking for
Great, thanks Ravi!
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.
Hi Narender,
You need to invest an additional Rs. 50,000 to claim tax exemption u/s 80CCD (1B).
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.
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.
Dear Sir,
However I am not first time investor, the current issue is FFO. Still you firm your opinion?
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?
Please refer CDSL/NSDL web for your eligibility.
https://www.cdslindia.com/investors/rgessverification.aspx
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.
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! 🙂
Oh great! You are welcome Amlan! 🙂
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
Hi Rajaraman,
Please contact Link Intime, Mumbai office for your L&T Infra Bond related queries – http://linkintime.co.in/website/ContactUs.aspx
excellent article. Very informative
Thanks Priya!
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 ?
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.
Thanks Amlan for your inputs!
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.
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
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.