CPSE ETFs with Tax Saving benefit Introduced in Budget 2019-2020

Last Updated on January 30, 2022 at 11:03 pm

The finance minister in her budget speech said: “ETFs have proved to be an important investment opportunity for retail investors and has turned out to be a good instrument for Government of India’s divestment programme. To expand this further, The government will offer an investment option in ETFs on the lines of the Equity Linked Savings Scheme (ELSS). This would also encourage long term investment in CPSEs”

However, at the time of writing, I cannot find any mention of this in the budget memorandum of the financial bill (no 2) 2019 Assuming this comes to be, the deduction from taxable income for investment in CPST ETFs should be within the 80C tax limit of Rs. 1.5 lakh. Also, there will be a lock-in period of at least one year or three years like ELSS funds.

Should you invest in such ETFs? Definitely no. Not even if they provide tax saving benefit under a separate section because of this (screenshot from Value Research), the NAV-price movement of Reliance CPSE ETF.

The risk of collective non-performance is simply too high, so highly avoidable. Always remember that incentives will only be provided for unattractive propositions!