Public-sector-evolution-reforms-and-performance / Public Sector - Evolution, Reforms and Performance / Bharat 22..
What is Exchange Traded Fund?
- An Exchange-Traded Fund (ETF) functions similarly to stocks, as it is a type of investment fund traded on stock exchanges.
- ETFs typically comprise assets like stocks, commodities, or bonds and usually utilize an arbitrage mechanism.
- The aim is to maintain trading close to its net asset value, although occasional deviations can happen.
- Investors may find ETFs appealing due to their cost-effectiveness, tax efficiency, and similarities to stocks.
- The Bharat-22 ETF, the second ETF introduced by the Government of India after the CPSE ETF, is consequently drawing interest from investors in the stock market.
Bharat 22 ETF
- Bharat 22 ETF is poised to mirror the performance of 22 stocks slated for government disinvestment.
- Each unit of the ETF represents a portion of the fund, with issued units available for trading on exchanges at quoted prices.
- The ETF will encompass six sectors: basic materials, energy, finance, FMCG, industrials, and utilities.
- In addition to public sector banks, miners, construction firms, and energy giants, it will incorporate some of the government's holdings in SUUTI (Specified Undertaking of Unit Trust of India).
- ICICI Prudential AMC will oversee the management of the Bharat 22 ETF, with Asia Index serving as the index provider. The index will undergo annual rebalancing.
Why is it important?
- The ETF mechanism has emerged as a savvy and efficient tool for the government to achieve its disinvestment objectives, playing a crucial role in managing the fiscal deficit.
- Through the ETF route, the government can strategically divest small stakes (typically 2-3 percent) across a diverse array of assets, offering a streamlined approach.
- Notably, the Bharat 22 ETF surpasses the CPSE ETF with over double the number of stocks (10 stocks) and boasts broader sector coverage, enhancing its appeal to investors.
