Investors looking for a complete and inexpensive investment vehicle should take the dip in Bharat 22 ETF
It’s a unique ETF that is being offered through the government’s disinvestment, but it makes a complete holistic portfolio of stocks because of its 22 private and public sector companies. Companies that comprise the Bharat 22 ETF are names like ITC, L&T, Axis Bank, Power Grid, NTPC, NHPC, SBI and so on.
What’s more, the Bharat 22 ETF is an inexpensive proposition for investors because its expense ratio is less than 0.1 percent unlike other equity funds which usually have an expense ratio of over 1 percent.
The underlying stocks in the Bharat 22 ETF are all growth names with a sound future. For instance, ITC has provided a compounded returns of over 18 percent in the last 10 years. ITC has a 15 percent weight in the ETF. L&T is another stock which is expected to benefit from the uptick in the economy, and it has a weight of nearly 17 percent in the ETF.
The hallmark of the Bharat 22 ETF is its unique blend of stocks both from the private and public sector and a good sectoral mix that ensures adequate diversification. For instance, materials, industrials, financial services, mining, FMCG all find a place in the Bharat 22 ETF.
Attractive Valuations
On the other hand, the Bharat 22 ETF is quite inexpensive if you compare this to the bellwether indices such as the BSE Sensex. The ETF is available at a PE ratio of 19 times earnings as compared to the S&P BSE Sensex’s PE of 23 times earnings. A dividend yield of 2.4 percent is the sweetener in the deal. The frontline indices have a dividend yield of just 1.2 percent.
The constructs of the exchange traded fund are well-balanced. However, the portfolio is slightly concentrated with the top two names like L&T and ITC comprising 30 percent of the portfolio. But one unique feature of this fund is that it will be rebalanced every year in March, and stocks that exceed a 15 percent individual cap will be pruned.
This ensures that the ETF will automatically be booking profits in these stocks if the weightages exceed the 15 percent cap limit.
A portfolio at a very low cost
The Bharat 22 ETF provides a good portfolio at a very low cost for investors not only because of its low expense ratio, but also because of its unique blend of stocks. Most of these stocks have a favourable outlook going forward among analysts and brokerages. This means that the fund is likely to outperform the bellwether indices over the longer run.
It also has the same tax breaks that goes with equity investments, which is no long-term capital gains tax if the investment is held for over a year.
Additionally, investors are getting an upfront discount of 3 percent on investments. However, investors should not just consider the discount because it results in just a 0.6 percent saving over a five-year tenure.
Instead, investors should consider the outlook for the underlying stocks. And here is where this fund scores high. Many of these stocks have a strong growth potential going forward, and hence, the Bharat 22 ETF is a must-invest fund for the long run.
