5 per cent to start with, anther 5 per cent for loyalty..!
The central government is considering to offer discounts on units of the proposed public sector ETFs (exchange-traded funds) to attract Small investors and ensure that its disinvestment plan does not go awry this time.
Initial discount of 5 per cent..!
A finance ministry official told an initial discount of 5 per cent be offered at the onset, with another 5 per cent as loyalty bonus to those who make fresh investments after staying invested in the fund for at least a year.
The retail investor will get a discount of 5 per cent on the NAV (net asset value) ,which will be calculated on the basis of the average stock price of the companies & their weightage in the fund, a finance ministry official said.
This will be followed by a bonus discount of 5 per cent on any fresh investments to those who continue to remain invested for a minimum period of one year.(12 months).
Guidelines ..!
The official said although the guidelines for the fund are not yet finalised, the central government is almost certain to offer the discount.The idea of the ETFs was mooted earlier this year (2012) to get around the problem of volatility in share prices of state run companies that come out with follow-on offers.
Under the mechanism under consideration, the central government will pool the shares of different companies it wants to disinvest in to create a fund, which will be sliced into smaller units. These units will then be listed on stock exchanges.The central government is of the view that by selling these units it will be able to raise Rs. 4,000 crore out of the Rs. 30,000 crore it has budgeted through disinvestment proceeds in the current fiscal. (2012-13)
Last October (2012) month,the department of disinvestment shortlisted ICICI Securities & Citibank as advisors to the issue. Asset management companies (AMCs) such as Vanguard, Black Rock, Goldman Sachs & State Street Global Advisors have evinced interest in being the ETFs provider for the proposed public sector ET .
We should be able to select the provider by the end of this year (2012) and the fund should be operational in January or February, 2013 the above quoted official said.
ETF Market in India..!
Earlier this month, disinvestment secretary Mr. M.H. Khan had said that the nascent ETF market in India has the potential to touch $ 500 crore even if a small number of demat account holders invest in these instruments.
We are hopeful that these discounts will give some extra reason for retail investors to participate & stay invested, the finance ministry official said.
Mr. Dhirendra Kumar, CEO, Value Research..!
Experts, however, say that a discount offer could not by itself ensure success of the ETF. All these things do not work in the long run, said Mr. Dhirendra Kumar, CEO, Value Research, a company that tracks mutual and pension funds.
The lock-in period is going to be the biggest disadvantage. The central government is banking on the ETF model as its proposed disinvestment programme has not kicked off so far. Differences with administrative ministries on the pricing have blocked issues of Rashtriya Ispat Nigam, SAIL, Nalco (National Aluminium Company) and BHEL etc..!
Src: ET
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