Bharat 22 ETF offer is open today with 5% discount; Should you invest?

The main motive for creating the index is nothing but choosing those stocks where the government can disinvest

Kumar Shankar Roy Feb 14, 2019

ETFYou have to take this decision fast. The Additional Offering Period (AOP) of ICICI Prudential Mutual Fund managed BHARAT 22 ETF is happening on February 14 i.e. today. This AOP is a part of the Government of India’s overall disinvestment programme. ICICI Prudential AMC proposes to raise upto Rs 3,500 crore in this AOP plus an additional amount as notified by the AMC, as per instructions of Government of India to be raised from AOP. Demat account is mandatory to apply for this ETF. RupeeIQ tells you more about this large-cap focussed offering, which has so far not delivered on its promise.

What is BHARAT 22 ETF

ICICI Prudential AMC was appointed to create, launch and manage the BHARAT 22 ETF. The ETF will invest in the equity securities of the underlying constituent companies of “S&P BSE Bharat 22 Index” in similar composition and weights as they appear in the said Index.

The Additional Offering Period of BHARAT 22 ETF opens and closes on February 14, 2019. Applications supported by cheques/demand drafts, transfer requests, RTGS and NEFT would be accepted till 8:00 p.m today.

So, basically, you are getting a chance to get exposure to 22 stocks (19 are PSUs) from 6 core sectors. These stocks include SBI, ONGC, Bharat Electronics, ITC, Power Grid, IOC, Axis Bank, L&T, GAIL, BPCL, Coal India, NTPC and BOB etc. The government has disinvested stocks worth Rs 22,900 crore through two tranches earlier. But do note that the BHARAT 22 ETF has been used as a trading tool by large investors, who have quickly exited the investment after getting the 3-5% discount offered. There is no lock-in period in this ETF. As on January 31, 2019, the ETF has an AUM size of less than Rs 5,200 crore.

Bharat 22

When to buy, how to buy

You as a retail investor can invest a minimum of Rs 5,000 and in multiples of Re 1.

About 34% of the total amount to be raised has been reserved for retail investors. You can get discount of 5% in Additional Offering Period. This discount is being provided to all investor categories on government disinvestment shares.

Investors can submit the physical application at designated Investor Service Centres of ICICI Prudential AMC or Computer Age Management Services Pvt. Ltd. (CAMS). Additionally, you can use the online mode to invest via ICICI Prudential AMC or ICICI Prudential Mutual Fund website, IPRUTOUCH App, NSE MFSS, BIMF (BSE IBBS PLATFORM), NMF II platform of NSE, e-ETF under web based NSE e-IPO platform, MF Utility and CAMSONLINE.

ASBA facility is not available. You have to submit cheques/demand drafts, transfer requests/ RTGS and NEFT along with the application form or invest online through your broker‟s trading platform to apply for this ETF.

Discount details

Do remember the 5% discount is not on ETF market price. The discount is calculated on Additional Offering Period Reference Market Price, which is determined on the basis of full day volume weighted average price on the BSE during the Additional Offering Period for each of the index constituents of the S&P BSE Bharat 22 Index.

Why ETF route

Typically, investors bet money on an Exchange Traded Fund or ETF due to four reasons.

One, every ETF tracks an index, in this case the S&P BSE Bharat 22 Index. The index is highly liquid as more than 99% of index constituents are available under Futures & Options (F&O).

Two, ETFs are open-ended scheme, which means you can enter and exit at anytime.

Three, ETF typically have lower expense ratio compared to actively managed schemes. BHARAT 22 ETF currently has an expense ratio of to 0.0095% p.a. of daily net assets of the scheme.

Four, ETFs have lower turnover and higher transparency as compared to actively managed schemes. BHARAT 22 ETF has a high turnover of 155% because of both excessive inflow and outflow in the fund.

Why track Bharat 22 index

The dividend yield of S&P BSE Bharat 22 Index, which is the underlying of the ICICI Prudential Mutual Fund managed BHARAT 22 ETF, is approximately 2.55%. This means the dividend yield can add some punch to returns.

Unfortunately though, the return of the BHARAT 22 ETF has not been good in recent past. In last one month, the fund NAV has dropped by 7.4%. In last year, the ETF NAV has declined over 11%, which is half of the Nifty PSE index. Do remember in last 12 months the Nifty 50 has gone up by 3.8%.

ETF taxation

Taxation for this ETF will be like that of equity shares or equity mutual funds. As per the prevalent tax laws, capital gains arising from investments held up to one year will be classified as STCG and will be taxed at 15%, plus surcharge and cess as applicable.

Long term capital gains exceeding Rs 1 lakh in a financial year, arising from the transfer of units of an equity oriented fund, equity shares and units of business trust are chargeable to tax at 10% plus surcharge and cess, as applicable.

ETF unit allotment

The ETF unit allotment will be made on a proportionate basis and not on a first-come first-served basis. For all successful applications, the units will be allotted within 5 business/working days from the closure of the Additional Offering Period. Allotment advices will be processed after the allotment is completed.

Post allotment of units, allotment intimation through SMS/email will be sent on the applicant’s registered mobile number/email id. Investors where mobile number/email id isn’t available, an allotment advice in physical form shall be sent to the applicant’s registered mailing address. All communication will be sent as per the data received from the respective depositories.

ETF listing

The units will be listed on BSE & NSE within five working days from the allotment date. Post listing of these units, trading happens on the exchange similar to any other listed securities.

Take a look at the ETF’s historical performance:

Poor Performance
YTD % 1-Month % 3-Month % 1-Yr %
BHARAT 22 ETF -7.76 -7.47 -6.47 -11.22
Largecap fund category -1.97 -1.21 0.63 0.08
Rank within category 91 98 96 85
Number of funds in category 99 100 96 91
As on Feb 13, 2019

RupeeIQ take – The ETF has a stock level cap of 15% and sector level cap of 20% applied annually at rebalancing. It gives you exposure to six sectors (Basic Materials, Energy, Finance, FMCG, Industrials and Utilities). Secular growth prospects (FMCG and Utilities) + Cyclicals (Energy, Metals, Industrials). Diversification can help reduce volatility and improve risk adjusted returns. Plus, the higher dividend yield in comparison to S&P BSE Sensex is quite attractive. Due to the sluggish performance in recent times, investing now in Bharat-22 ETF is an attractive investment opportunity due to lower P/E and relatively better earnings growth prospects in comparison to S&P BSE Sensex.

But, it is also true that unlike a diversified mutual fund, there is no sound investment logic behind putting this ETF together. The main motive for creating the index is nothing but choosing those stocks where the government can disinvest. Plus the index is heavily concentrated in just four stocks (SBI, Axis Bank, ITC and L&T) with nearly 55% money in them. This makes BHARAT 22 ETF is quite a concentrated ETF and thereby increases risks for investors. It may be suitable for investors with high-risk appetite. New investors can give this a miss and invest in well-diversified large cap funds with 10-15 year track-record.

Disclaimer – Please note that investors are requested to consult their financial, tax and other advisors before taking any investment decision.


Kumar Shankar Roy

Kumar Shankar Roy is contributing editor with RupeeIQ. Kumar is a financial journalist, with a functional experience of 15 years. He tracks mutual funds, insurance, pension, PMS, fixed income/debt and alternative investments markets closely. He has worked for The Times of India, The Hindu Business Line, Deccan Chronicle Group, DNA, and Value Research, among others, across different cities in India. He is deeply interested in marrying data insights with actionable opinion. He can be contacted at kumarsroy@rupeeiq.com.

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