What is CPSE ETF and How Does It Work? Complete Investment Guide

09 Feb 2026

JM Financial Services

If you are looking for a low-cost way to invest in India’s public sector companies, the CPSE ETF could be an interesting option. It offers diversified exposure to select Central Public Sector Enterprises (CPSEs) in a single investment.

Let’s understand what CPSE ETF is, how it works, and whether it fits into your investment strategy.

What is CPSE ETF?

CPSE ETF stands for Central Public Sector Enterprise Exchange Traded Fund. It is an ETF launched by the Government of India to disinvest its stake in selected public sector companies in a structured manner.

The ETF tracks the Nifty CPSE Index, which comprises selected blue-chip government-owned companies across sectors like:

Energy
Oil & Gas
Power
Coal
Engineering

It allows investors to gain exposure to multiple PSU stocks through a single unit.

How Does CPSE ETF Work?

CPSE ETF functions like any other exchange traded fund:

It tracks the Nifty CPSE Index.
The fund holds shares of PSU companies in the same proportion as the index.
Units are listed on stock exchanges like NSE and BSE.
Investors can buy and sell units through their demat and trading accounts.
Returns depend on the performance of underlying CPSE stocks.

The Net Asset Value (NAV) moves in line with the performance of constituent public sector stocks.

Key Features of CPSE ETF

Invests only in government-owned enterprises
Low expense ratio compared to active mutual funds
Dividend-paying PSU heavy portfolio
Transparent and index-based
Traded like stocks on the exchange
Suitable for long-term investors seeking dividend yield

Why Government Introduced CPSE ETF?

The CPSE ETF was introduced as part of the government’s disinvestment strategy. Instead of selling shares individually in the open market, the government bundles PSU stocks into an ETF and offers them to investors.

This helps:

Raise capital efficiently
Promote retail participation in PSU stocks
Improve liquidity in public sector enterprises

Who Should Invest in CPSE ETF?

CPSE ETF may suit investors who:

Believe in PSU revival theme
Want exposure to energy and oil & gas stocks
Prefer dividend-paying companies
Seek low-cost passive investing options
Want diversification within public sector stocks

Tax Implications :-

CPSE ETF is taxed like equity mutual funds:

Short-term capital gains (holding < 1 year): 15%
Long-term capital gains (holding > 1 year): 10% above ₹1 lakh
Dividends taxed as per income slab

Here are the top 10 CPSE ETF companies, largely based on their weightage in the index:

NTPC Ltd (Power Generation/Distribution)
Bharat Electronics Ltd (BEL) (Defense/Electronics)
Power Grid Corporation of India Ltd (Power Transmission)
Oil and Natural Gas Corporation Ltd (ONGC) (Oil & Gas Exploration)
Coal India Ltd (Mining & Minerals)
NHPC Ltd (Power Generation)
Oil India Ltd (Oil Exploration)
SJVN Ltd (Power Generation)
Cochin Shipyard Ltd (Ship Building)
NBCC (India) Ltd (Construction & Real Estate)

Advantages of CPSE ETF

Low expense ratio
Exposure to large PSU companies
Dividend yield potential
Transparent index-based investing
Government-backed enterprises
Liquidity on stock exchange
Suitable for long-term passive investors
Diversified public sector exposure

Risks of CPSE ETF

Sector concentration risk (energy heavy)
High exposure to oil & gas stocks
PSU governance concerns
Policy and regulatory risk
Limited diversification outside CPSEs
Market volatility impact
Dividend dependency risk
Cyclical performance

CPSE ETF vs PSU Mutual Fund

Parameter	CPSE ETF	PSU Mutual Fund
Type	Passive	Active
Expense Ratio	Lower	Higher
Stock Selection	Index-based	Fund manager driven
Trading	On exchange	Via AMC
Transparency	High	Moderate

Should You Invest in CPSE ETF?

If you are bullish on:

India’s PSU disinvestment strategy
Energy sector growth
Dividend income investing
Long-term government enterprise growth

Then CPSE ETF may fit into a diversified portfolio.

However, avoid over-allocation as the ETF has sector concentration risk.

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FAQs

1. What is CPSE ETF in simple words?

CPSE ETF is an exchange traded fund that invests in selected government-owned companies (Public Sector Undertakings). It tracks the Nifty CPSE Index and allows investors to buy multiple PSU stocks through a single investment.

2. How does CPSE ETF generate returns?

CPSE ETF generates returns through:

Price appreciation of underlying PSU stocks
Dividends paid by constituent companies

The ETF’s performance depends on the overall performance of energy, oil & gas, and other PSU sectors.

3. Is CPSE ETF safe to invest in?

CPSE ETF invests in large, government-backed enterprises, which may offer stability. However, it carries:

Market risk
Sector concentration risk
Policy risk

It is not risk-free but may suit long-term investors comfortable with PSU exposure.

4. How can I invest in CPSE ETF?

You can invest in CPSE ETF by:

Opening a demat and trading account
Searching for the ETF on NSE or BSE
Buying units like a stock during market hours

No separate mutual fund application process is required.

5. What is the expense ratio of CPSE ETF?

CPSE ETF generally has a low expense ratio compared to actively managed PSU mutual funds, making it a cost-efficient passive investment option.

6. What is the minimum investment in CPSE ETF?

You can invest in CPSE ETF by purchasing even one unit on the stock exchange. The minimum investment depends on the current market price of one ETF unit.