Short Note: Bharat 22 ETF

What is Bharat 22 ETF? What is its composition and how it is different from earlier ETFs? Have ETFs played some worthwhile role in Indian Economy in recent times?

Bharat 22 ETF is a new exchange traded fund that includes under one roof 22 blue chips like IOC, ONGC, SBI and partially in ITC, Larsen & Toubro, Axis Bank which are held by it through the Specific Undertaking of the Unit Trust of India (SUUTI). It has been launched with the expectation of increasing process of disinvestment of an amount of Rs 72,500 crore in the fiscal year of March 2018. These ETFs will be available in the stock exchanges from where the investors can buy their units. The stocks of these 22 companies will have a direct impact on the rise or fall of value of ETF units.

Composition

The ETF comprises of mainly six sectors-basic materials with a weightage of 4.4%, FMCG with a weightage of 15.2%, industrials 22.6%, energy 17.5%, utilities 20% and finance 20.3%.

Scope and Relevance

The Bharat 22 ETF has extended its scope beyond the other ETFs. The previous Central Public Sector Enterprises (CPSE) ETF included many energy sector companies, but this new ETF includes a diversity of sectors. The target amount to be raised in disinvestment is higher than the previous ETF amount which was Rs 8500 crore last year. The inclusion of the Indian banks under the ETF is expected to improve the status of the ETFs than the previous ones. This is because till date the people are keen to know the share of the government in the banks before they invest in them. Bringing them to the ETF category will boost their status.

The introduction of ETFs plays some key roles in the Indian economy. First, they have helped largely in disinvestment in the public sector enterprises. Since disinvestment is a major need of the PSUs running at a loss, this has been an expedient and an efficient method to achieve this.  Second, ETFs have played role in financial inclusion and formalization / digitization of the economy too. It is a comparatively easier method of investment for first-time investors than in individual stocks and mutual funds. So, it provides a route of investment for large number of small investors, who are included in the financial sector of the economy in an active manner. It is also a productive investment towards the direct welfare of the economy than the real estate sector or similar ones. Further equal facilities as that of other investment routes with increased transparency make it a better investment option. The operation cost and risk involved is also low making the assets highly liquid and thus highly preferable.

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