BAJAJ BROKING
May 31, 2025
4 mins read
Diversification of an investment portfolio is the core of an investor. Whether it is the hot stocks in the share market, those making headlines, or comparatively stable options, investing in a basket of securities is always a good idea. If you are planning to invest in government-backed securities, the CPSE ETF (Central Public Sector Enterprises Exchange Traded Fund) can be the right choice for you. The Government of India owns several companies that are listed on the stock exchanges, and you may invest in these either individually or through an ETF.
Investing in CPSE ETF not only gives you exposure to the government-backed companies but also bring in comparatively stable assets in your portfolio. Having a diversified portfolio simply means you get stable and better returns. Even if the performance of one fund goes unexpected, others can balance the losses, if any.
CPSE ETF is one of the types of stock market investments that investors can opt for. So, to help you out with this decision, we have a detailed guide on the CPSE ETF. Let’s dig deeper to understand what CPSE ETF is, how you can get started with it, and what benefits it brings you. Read on till the end to get answers to all your queries!
The CPSE ETF, or Central Public Sector Enterprises Exchange-Traded Fund, is an investment vehicle that allows investors to invest in a pool of government-owned firms. It's an exchange-traded fund (ETF), meaning it is listed and traded on the stock markets like individual stocks.
Initiated as a component of the Government of India's disinvestment programme, the CPSE ETF enables the government to mobilize funds by offering to sell its holdings in public sector undertakings (PSUs). The target is to raise capital, of more than ₹1 lakh crore, by providing investors with a convenient means of investment in several PSUs through a single fund.
This ETF consists of shares of chosen Central Public Sector Enterprises from different sectors like energy, mining, and heavy industry. Investing in the CPSE ETF offers individuals diversified exposure to several public sector companies with a lower risk involved in investing in one stock. Diversification helps to control volatility, particularly during market fluctuations, hence making it a more stable form of investment in the long run.
One of the interesting aspects of the CPSE ETF is that it is a passively managed fund. This implies that it seeks to track the performance of a given benchmark index, such as the Nifty CPSE Index. The role of the fund manager is to make sure that the ETF tracks the index in terms of composition and returns, but not through active selection of and management of individual stocks.
Due to this passive management approach, the CPSE ETF has lower management fees than actively managed mutual funds. It also offers transparency, as investors can trace its performance directly in line with the benchmark index.
In short, the CPSE ETF is a state-run investment vehicle aimed at providing investors with a low-cost, diversified, and transparent vehicle to invest in India's top public sector enterprises while promoting the government's disinvestment objective.
The Government of India initiated the Central Public Sector Enterprises Exchange-Traded Fund (CPSE ETF) as part of its disinvestment policy to release the value of its stakes in public sector companies. The Department of Disinvestment, currently referred to as the Department of Investment and Public Asset Management (DIPAM), launched the first CPSE ETF, "CPSE ETF 2014," in March 2014.
The opening was successful, as it provided investors with a convenient means of investing in high-performing public sector enterprises (PSUs) in one transaction. Spurred on by the response, the government launched additional tranches, like CPSE ETF 2017 and CPSE ETF 2019, each with varying mixes of CPSEs.
The success of the CPSE ETF encouraged the government to look at ETFs as an efficient vehicle for further disinvestment. This resulted in the launch of other thematic ETFs, such as the Bharat 22 ETF, which has a diversified portfolio of CPSEs, public sector banks, and strategic holdings by the government.
These ETFs have since become an integral component of India's capital market and disinvestment agenda.
Overview of the Popular 10 Holdings in the CPSE ETF Portfolio
The CPSE ETF comprises shares of major Central Public Sector Enterprises (CPSEs) that play a key role in India's economic development. These government-backed companies operate across critical sectors such as energy, infrastructure, defense, and shipping. Here's a closer look at some of the most prominent constituents of the CPSE ETF:
NTPC Ltd.
NTPC Ltd, formerly National Thermal Power Corporation Ltd, is India's largest power-generating utility with an installed capacity of 73,824 MW. It was rechristened in 2005 to denote its diversification from thermal energy into other forms of power generation. NTPC's portfolio of thermal, hydro, solar, and wind-power projects is a critical component of meeting the nation's electricity needs.
Power Grid Corporation of India Ltd
Power Grid Corporation of India Ltd is India's largest electricity transmission utility. Under the Maharatna status, it started operations as National Power Transmission Corporation Ltd, with the mandate to handle high-voltage power transmission in India. It was renamed in 1992. Power Grid has established an enormous network across India and ensures the smooth delivery of power. The Government of India owns a 51.34% stake, while the remaining 48.66% is held by public shareholders.
Oil and Natural Gas Corporation Ltd (ONGC)
ONGC is India's leading crude oil and natural gas producer, providing roughly 70% of natural oil and 84% of natural gas. With headquarters in New Delhi and functioning under the Ministry of Petroleum and Natural Gas, ONGC is the backbone of the nation's energy requirements. It has ventured out to foreign markets in the course of time and is known internationally as a top-notch exploration company for oil and gas.
Coal India Ltd (CIL)
Coal India Limited is the world's largest coal producing company and enjoys the status of being a Maharatna PSU. It operates under the Ministry of Coal and was conferred the status of a Maharatna in April 2011. With an enormous strength of more than 2.3 lakh employees (as of April 2023), CIL provides a consistent coal supply to power plants and industries in India, making a huge contribution towards the energy security of the nation.
Bharat Electronics Ltd (BEL)
BEL is a Navratna PSU from the Ministry of Defence, with expertise in designing and producing high-technology electronic systems for aerospace and defence. From radar to communication equipment, BEL serves India's strategic defence requirements. BEL is also among the leading dividend-paying companies in the CPSE ETF portfolio, hence suitable for long-term investors.
NHPC Ltd
Founded in 1975, NHPC Ltd is a Mini Ratna organization majorly engaged in hydropower development but has diversified into solar and wind power. It undertakes the entire project life cycle of hydropower projects, right from planning to implementation. Listed on the stock exchange in 2009, NHPC operates in 14 states and 2 union territories now. It also provides consultancy, project management, and power trading services and is ranked as a leading dividend-paying stock within the ETF.
Oil India Ltd
Oil India Limited (OIL) is the second-largest Indian national oil and gas company. Established in 1959 after the discovery of oil at Digboi, Assam, it has extended operations to other northeast areas like Moran and Naharkatiya. With Maharatna status, OIL explores, produces, and pipelines oil and gas throughout the country and continues to be a prominent player in India's energy economy.
SJVN Ltd
SJVN Ltd, earlier known as Satluj Jal Vidyut Nigam, is a Mini Ratna PSU jointly set up by the Government of Himachal Pradesh and the Government of India. It is located in Shimla and is mainly involved in the generation and transmission of hydroelectric power. SJVN is slowly venturing into other renewable energy areas like solar and wind power, aiding India's clean energy shift.
NBCC (India) Ltd
NBCC India Limited is a Navratna public sector enterprise under the Ministry of Housing and Urban Affairs. It started as an engineering, procurement, and construction (EPC) company but has expanded to become a prominent real estate and infrastructure development company, particularly in government redevelopment works. Listed in 2012, NBCC achieved Navratna status in 2014 and became part of an exclusive list of top-performing PSUs.
Cochin Shipyard Ltd
Cochin Shipyard Ltd (CSL) is a premier shipbuilding and repair company with over 50 years of experience. A Miniratna under the Ministry of Ports, Shipping and Waterways, CSL builds and repairs vessels for domestic and international clients. It also undertakes offshore vessel construction, conversions, marine engineering, and defense shipbuilding, reinforcing India’s maritime capabilities.
These firms, by being part of the CPSE ETF, provide investors with diversified exposure to India's core sectors and government-sponsored enterprises, combining security with long-term growth prospects.
The essence of the CPSE ETF is in its underlying holdings, the shares of several Central Public Sector Enterprises (CPSEs). The state-owned companies are essential to Indian economic growth and are engaged in essential sectors including energy, banking, and infrastructure. A few of the prominent CPSEs included in the ETF holding are ONGC, NTPC, Coal India, among others. When you invest in the CPSE ETF, you own a share of all these companies indirectly.
The CPSE ETF share price performs very much in line with the overall performance of these constituent CPSE stocks. This implies that you enjoy the prosperity of these companies while you also share a proportion of the related market risks, and so it is a diversified and balanced investment opportunity.
The Central Public Sector Enterprises Exchange-Traded Funds (CPSE ETFs) are overseen by the Department of Investment and Public Asset Management (DIPAM), which is the Government of India. DIPAM is the one that introduces these ETFs and decides the composition of the portfolio. The main objective is to mobilize funds through disinvestment by issuing the government share in CPSEs to the public through ETFs.
Even if the government sells shares, it still has a strong equity in the underlying firms, which are interested in their flourishing and prosperity. This arrangement keeps the government interested in the growth and success of the listed public sector units.
Key Features of CPSE ETFs are:
Flexible Investment Option:
CPSE ETFs do not have any lock-in period, and investors can come in and out as they wish.
Easy Trading:
Units of the CPSE ETF can be purchased or sold on stock exchanges similar to ordinary stocks.
Low Entry Barrier:
Investors can invest as low as one unit, which makes it convenient for retail investors.
Index-Linked Investment
The CPSE ETF aims to replicate the performance of the NIFTY CPSE Index to provide indirect exposure to significant public sector entities.
High Equity Allocation:
The ETF currently has around 98.6% of its assets invested in equities.
Exposure to Liquid Assets:
The fund holds a small amount of liquid instruments, including cash and government securities, to address liquidity.
Large-Cap Dominance:
More than 75% of the equity exposure of the ETF is in large-cap public sector companies, which provides relative stability.
Representation in Mid-Caps:
About 20% of the CPSE ETF is placed in mid-cap stocks, and this gives some growth potential.
Concentration in Sectors:
The portfolio of the CPSE ETF is highly concentrated in the power and oil & gas sectors.
Top Holdings:
Principal constituents are NTPC, Power Grid Corporation, and ONGC, each representing close to 20% of the total portfolio of the ETF.
Passive Management:
As a passively managed fund, it is set to follow the index with little deviation without the need for active stock picking.
Low Expense Ratio:
CPSE ETFs are inexpensive with an expense ratio of merely 0.05%, compared to the average 2% levied by actively managed mutual funds.
Government Backing:
Having the ETF supported by shares of government-held companies, it comes with an aura of stability and credibility.
Best Suited for Long-Term Investors:
Being exposed to large and stable public sector companies, the CPSE ETF is ideal for long-term investors, particularly those who need steady returns with moderate risk.
This makes CPSE ETF a low-cost, diversified, and government-guaranteed investment option, ideal for conservative investors who want to access the performance of India's public sector giants.
Follow these steps to start your CPSE ETF investment journey:
Step 1: Research and Evaluate
Begin by learning about what CPSE ETFs are and how they function. Research their past performance, portfolio makeup, expense ratio, and risks involved. Because CPSE ETFs invest in state-owned enterprises across industries such as power, oil & gas, and infrastructure, determine if this is something that fits with your investment objectives, investment horizon, and risk tolerance.
These ETFs could be more attractive to long-term, somewhat conservative investors given their emphasis on large-cap public sector businesses.
Step 2: Select the Appropriate CPSE ETF
There are various CPSE ETF tranches available in the market, each launched at different times and possibly holding different combinations of CPSE stocks. Compare them based on:
The underlying CPSEs included
Sector-wise exposure
Weightage of top holdings
Expense ratios
Choose the ETF that best aligns with your investment strategy—whether you’re seeking high dividends, diversification, or sector-specific exposure.
Step 3: Open a Demat and Trading Account
In order to invest in any ETF, including CPSE ETFs, you'll need a Demat account linked to a trading account. If you do not have one, you can open one through a stockbroker, bank, or online investment website. Make sure your Demat account is also linked with your bank account for smooth fund transfers and settlements.
Step 4: Purchase CPSE ETF Units
Log into your trading account and look for the CPSE ETF by its symbol or name. Choose how many units you desire to purchase and whether you wish to issue a market order (buy at prevailing market price) or a limit order (buy at a desired price). Once you have entered the order and it has been executed, the ETF units will be credited to your Demat account.
Step 5: Monitor and Follow-up
Once you have invested, track your investment regularly. Follow:
The NAV (Net Asset Value) of the ETF
Sector performance and macroeconomic conditions
Any shift in the CPSE ETF portfolio structure
Staying informed enables you to make prudent choices regarding holding, increasing, or disinvesting your investment based on market trends and your financial requirements.
This step-by-step guide makes it easy to start investing in CPSE ETFs economically and with confidence!
Now let's have a look at the various advantages and disadvantages of the CPSE ETFs:
Advantages of CPSE ETFs | Disadvantages of CPSE ETFs |
Diversification: Offers exposure to a basket of CPSE stocks across sectors, reducing the impact of poor performance by any single company. | Market Risk: Subject to market volatility, which can affect ETF prices in the short term. |
Low Expense Ratio: Passively managed, resulting in lower management fees and maximizing investor returns. | Sector Concentration: Heavily invested in power, energy, and oil & gas sectors, increasing exposure to sector-specific risks. |
Liquidity: Listed and traded on stock exchanges, allowing real-time buy/sell transactions during trading hours. | Government Policy Risk: Dependent on government decisions regarding disinvestment and sector reforms. |
Cost-Effectiveness: Minimal transaction costs make them appealing to cost-conscious investors. | Limited Active Management: Passively managed structure doesn’t allow for portfolio changes during downturns. |
Stable Returns Potential: Comprised of well-established CPSEs that may offer consistent dividends and long-term growth. | Tax Implications: Subject to taxation laws which may affect the net returns. |
Analyzing the Past Performance of CPSE ETFs
To consider the past performance of CPSE ETFs, it is helpful to analyze past trends of various tranches issued by the Government of India. The initial CPSE ETF was launched in 2014, and then more issues were brought to market in 2017 and 2019. Each tranche indicates the market environment at the time of issuance and gives us an idea of the performance of the fund during varied economic cycles.
By observing the Net Asset Values (NAVs) over the years, investors would be able to see how such ETFs have reacted to different market situations. For example, the first CPSE ETF, which was introduced in 2014, provided good returns during its initial years, particularly in years with good market performance as well as positive government policies. Subsequent tranches in 2017 and 2019 had more uneven experiences with the effects of market volatility and sector-specific issues.
Examining Historic Trends and Returns
The short-term performance of CPSE ETFs is generally driven by investor sentiment, budget announcements, disinvestment reports, and overall global economic trends. In volatile markets, the NAV would witness high volatility, which is a mirror reflection of the corresponding movement of the underlying public sector stocks.
Yet, in the long run, CPSE ETFs have evidenced the capability to grow steadily, especially in periods of economic recovery or if public sector undertakings (PSUs) were performing well. Investors considering a 5-year or longer time frame may observe a series of growth periods, transient corrections, and low volatility.
Knowledge of these trends is crucial to making smart investment choices. Past performance does not necessarily reflect future performance, but it allows investors to determine how CPSE ETFs respond during various market scenarios. Investors can use this insight to match their CPSE ETF investments with their risk tolerance and investment objectives, particularly if they want access to India's public sector growth narrative.
CPSE ETFs carry several risks that investors should understand before investing.
Market Volatility and Risks
Similar to any investment in a stock market, CPSE ETFs carry risks of the market. The Net Asset Value (NAV) of CPSE ETFs varies in accordance with the overall stock market based on economic situations, geopolitical events, and sentiment of the investors. This results in swift changes in price and possible short-term losses, and hence the investor should be ready for volatility and evaluate their risk tolerance seriously.
Sector-Specific Risks
CPSE ETFs are invested in companies from various sectors, including energy, banking, and infrastructure. Every sector has its own specific challenges—for instance, the energy sector is vulnerable to crude oil price fluctuations, while the banking sector is exposed to interest rates and loan quality changes. Overweighting in one sector heightens risks exposure, hence diversification across sectors is crucial to mitigate possible adverse effects.
Government Policies and Regulatory Risks
Because CPSE ETFs primarily contain government-held firms, shifts in government policies concerning disinvestment, privatization, or sector-related regulations have a direct impact on the performance of the ETF. Alterations in taxation policies on capital gains arising from ETFs also affect the net returns of the investors. Keeping abreast of government interventions and regulatory moves is essential for CPSE ETF investors to handle these risks.
Some of the factors that may affect the performance of CPSE ETFs are:
Policies of the Government
Government policies will be the most important. Disinvestment, privatization, and other reforms in the public sector policy will have a direct impact on investor mood. A firm commitment from the government to enhance the efficiency and profitability of CPSEs can provide a boost to market confidence and yields.
Economy
It is also the economic growth. An expanding economy generally allows for greater earnings for public sector enterprises, leading to the overall performance of CPSE ETFs.
Sectoral performance
Sectoral performance is another crucial consideration. As CPSE ETFs invest in firms belonging to sectors such as energy, infrastructure, and finance, the performance will be highly dependent on the performance of these industries. Investors must keep an eye on the developments of these industries to know the ETF's potential better.
Lastly, global events like geopolitical tensions, inflationary trends, and global capital flows can influence CPSE ETFs. Global market movements can influence investor sentiment and fund flows, so it is essential to remain updated on both domestic and global events.
Investment in CPSE ETFs provides a distinct avenue for investing in India's top public sector enterprises across sectors such as energy, infrastructure, and finance. CPSE ETFs diversify your portfolio by aggregating several CPSE shares into one investment. Suited best for those willing to bet on India's public sector story, CPSE ETFs track the performance of these businesses.
Yet, investors must review their risk tolerance and financial objectives before they invest, since CPSE ETF share prices may change according to market patterns. Frequent checking of these prices is essential so that informed selling or buying decisions can be made and maximum returns obtained.
In summary, CPSE ETFs present a novel investment proposition for people who wish to invest in India's public sector undertakings. CPSE ETFs bring with them the virtues of diversification, affordability, and liquidity, and hence represent an appealing choice for both investors new and experienced alike.
Though they do involve risks of market volatility and the performance of the sector, their long-term prospects remain encouraging, particularly with ongoing government efforts on reforms and disinvestment. By linking investment and individual financial objectives as well as risk resistance, investors can best take advantage of CPSE ETFs. When researched properly and monitored frequently, CPSE ETFs can be a great element of a diversified portfolio.
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The CPSE ETF is a government-guaranteed Exchange-Traded Fund that invests in Central Public Sector Enterprises shares, allowing investors to get exposure to public sector companies in one investment.
CPSE ETF aggregates money of the investors to invest in a basket of chosen CPSE shares, following the Nifty CPSE Index, and enables trading on stock exchanges like any ordinary stock.
Advantages include diversification of portfolios, low cost ratio, exposure to stable government-backed businesses, on-time trading flexibility, and possible long-term returns with relatively lower investment risks.
Yes, CPSE ETFs are exposed to market volatility, sectoral risks, and policy changes. Returns can vary on the basis of economic factors, government actions, and individual CPSE performance.
To invest, one needs to open a Demat account, log in to your trading account, find CPSE ETF, enter your desired units, and buy as you do with any listed stock.
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