Now, govt plans a fund of funds for equity, debt ETF for PSUs

NEW DELHI: After helping the government mop up a record Rs 90,000 crore, the department of investment and public asset management (Dipam) is readying two products to deepen the market for equities as well as corporate debt, a top government official said on Friday.
Pointing to amendments in the Budget, Dipam secretary Neeraj Gupta said that his team would now work on a fund of funds that will tap into the base of six crore mutual fund investors and enable them to invest in exchange-traded funds (ETFs) such as Bharat 22.

Thus far, the tax treatment was like that applied to a debt fund, which will now be like an equity-oriented mutual fund, Gupta said.
While debt funds do not enjoy capital gains tax benefits, the facility is available for equity-oriented funds, where investors have to pay a concessional 10% tax for holdings over 12 months or 15% in case they stay invested for less than the cut-off period.

In recent years, the government has pooled shares to form a basket of stocks and float an ETF based on that. A fund of funds, where the fund invests in other type of funds, will deepen the market.
Similarly, Gupta said, the government was working on launching a debt ETF that will pool the bond issues of public sector companies and help them access funds at lower rates from the markets, without having to depend on bank funding.

While around 15 PSUs have tapped the bond market to raise funds, the absence of depth and liquidity has not helped them raise money at low rates.
“A debt ETF product will be considered and, based on the borrowing requirement, we will be able to stagger the fund raising and help the PSUs raise more money at lower rates,” Gupta said, a day after FM Arun Jaitley talked about nudging large corporate houses to tap the corporate bond market.

Citing the ONGC-HPCL deal, the Dipam secretary said mergers make sense to create value and synergies. “M&A is part of a policy to create value and realise their true economic potential. Disinvestment is incidental.
This policy can be used across the board and pursued purely on economic rationale. HPCL is a win-win proposition, creating value for the two companies and for the government,” he said.

ONGC recently agreed to acquire majority government stake in refiner HPCL in a Rs 37,000 crore deal, helping the Centre scale the Rs 72,000 crore disinvestment target for the current fiscal and revise the target to a record Rs 1 lakh crore.
The government also hopes to revive the strategic sale programme during the current financial year, including the much-talkedabout sale of loss-making national carrier Air India.
“Strategic sale has been restarted after a gap of 12 years. So, in the initial phases, drawing up a professional and robust process is bound to take time. All transactions are progressing,” Gupta said.