The Cabinet is likely to clear Disinvestment Department’s proposal soon for setting up a PSU Exchange Traded Fund (ETF), aimed at helping reduce post stake sale volatility in shares of state-owned companies.

“The proposal of a PSU ETF could be taken up in the next meeting of the CCEA. The meeting is likely later in the week,” a source said.

The ETF would comprise 2-3 per cent of shares of listed public sector undertakings (PSUs).

The Empowered Group of Ministers (EGoM) on disinvestment would decide on the structure of the ETF and also the methodology for inclusion and exclusion of scrips from the fund, the source added.

“The returns of PSU ETF would be benchmarked against CPSE Index Fund. The Fund will be listed on the stock exchanges and will have shares of all PSUs except banks,” the source said.

The DoD has already appointed legal advisers for the PSU ETF and is in the process of appointing asset management companies for managing the fund.

The proposed ETF comprising shares of listed CPSEs would serve as an additional mechanism for the government to monetise its shareholdings in those companies.

Meanwhile, a Finance Ministry official said: “The ETF once launched would help in reducing post disinvestment volatility in the shares of PSUs. It would help in going ahead with the disinvestment programme for the current fiscal.”

The government is planning is raise Rs 40,000 crore by way of PSU stake sale in the current fiscal and has lined up a host of companies, including Indian Oil, Engineers India, Coal India and Hindustan Aeronautics for divesting minority stake.

In the last fiscal (2012-13), the government has raised Rs 23,920 crore through disinvestment.

The PSU ETF would comprise shares of various profitable state-owned companies. The composition of ETF and weightage of the shares of individual PSU in the index would be decided by the EGoM.

ETFs were introduced in India in 2001. Currently, there are 33 ETFs having assets under management of close to Rs 11,500 crore and held by 6.2 lakh investors. Gold ETFs dominate ETF market in India.

Globally, ETFs have been growing at a rapid pace with an annual growth rate of over 34 per cent in the last decade, with Assets Under Management of $ 1.5 trillion.

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