Bharat 22 ETF Makes An Attractive Investment With Potential For Good Growth
If you are looking for a solid, mid-cycle growth investment vehicle in the Indian market, take a plunge into the Bharat 22 Exchange Traded Fund
The recent offering through the government of India's divestment program that of the Bharat 22 Exchange Traded Fund is an excellent opportunity to get a good yield with a potential for decent growth in the long run.
Among the roster of Bharat 22 ETF stocks that are being divested are marquee names like ONGC, HPCL, ITC, L&T, Power Grid, NTPC, NHPC, SBI, Axis Bank, SJVN, Coal India, Bank of Baroda, Power Finance, Indian Bank, Gail, NLC India, Engineers India, Bharat Electronics, Nalco, Indian Oil, NBCC and REC.
In fact, the Bharat 22 ETF is a unique portfolio mix of cyclical and defensive stocks. With the Indian economy positioned for a recovery in capex and infrastructure, all these names have a good growth potential going forward.
If you compare these stocks purely on valuations, then the PE ratio of the ETF works out to 19 times as compared to the 23 times of the S&P Sensex and 25 times of Nifty, which makes its valuations attractive. The ETF also provide a solid dividend yield of 2.4 percent, which is twice that of the frontline indices at 1.2 percent.
One of the key's to create a sound portfolio is proper diversification, and hence with its 22 stocks the Bharat 22 ETF portfolio appears comprehensively diversified. Sectors included in the ETF are FMCG, metals, industrials, engineering and construction, among others.
A salient feature of this fund due to its ETF status is that it makes a comprehensive portfolio with a very low expense ratio of less than 0.1 percent. This is highly cost effective for investors. By contrast, most equity funds have an expense ratio of over 1 percent. As a result, the final returns to investors are much lower in equity funds.
On the other hand, constructing a similar portfolio for investors directly could prove more costly than the ETF as brokerage and securities transaction tax involved is generally higher for small ticket investments, while investors will also find it difficult to create a portfolio with similar weightages.
Besides, the companies being divested through the ETF are well-entrenched in their businesses. Additionally, these stocks are liquid as all but one of them are traded in the derivatives segment. This in turn ensures that the ETF remains highly liquid, and that there is negligible tracking error of the fund with its benchmark indice.
Additionally, the government has offered a 3 per cent discount to all investors on the offer price, which of course should not be the reason to invest, but nevertheless acts like an icing on the cake.
Further, it offers the same taxation benefit as equity stocks, which is that long term investment of over a year will not attract any capital gains tax, while an investment of less than a year will be considered for short-term capital gains tax.
However, what is more crucial for investors to consider is how the portfolio is positioned for long haul investing. On that score, the 22 solid growth names in the ETF makes Bharat 22 a unique and inexpensive portfolio that one must invest in and hold for a long time to come.