ICICI Prudential Nifty PSU Bank ETF: NFO Opens Today—Should You Buy?

ICICI Prudential Mutual Fund on Monday launched a new fund offer (NFO) for ICICI Prudential Nifty PSU Bank ETF, an open-ended fund tracking Nifty PSU Bank Index.  

The NFO will close on March 15, 2023. 

The fund house seeks to capitalize on the relatively undervalued Nifty PSU Banks compared to their private counterparts, providing an opportunity to invest in the good dividend-yielding ETF. As such, the ETF will reflect the performance of the index’s 12 PSU banks.  

Speaking on the product, Chintan Haria, the head of Investment Strategy at ICICI Prudential AMC, said, “Over the past decade, PSU banks have undergone a transformation on account of their improving efficiency, customer-centric approach, technological superiority, and improving risk management frameworks. As a result, since 2018, net NPAs (non-performing assets) have fallen by over 65 per cent while the capital adequacy ratio has risen by almost 15 per cent.”  

Haria said that “this improvement is reflected in the equity market as well, with the Nifty PSU Bank TRI delivering better returns than Nifty 50 TRI and Nifty Bank TRI.” 

In 2022, the public sector banks led the rally in banking stocks. The fund house said investors should consider investing periodically to gather more units during market corrections and boost returns when markets go up due to lower average unit purchase costs. 

Why Invest In ICICI Prudential Nifty PSU Bank ETF?  

Banks typically have robust demand. They accept deposits and lend money to customers in need, facilitating the optimum utilisation of scarce resources. 

PSU banks benefit from all economic sectors and facilitate GDP growth. Moreover, their asset quality has been improving due to reforms leading to risk reduction and higher returns. 

In addition, the ETF will allow investors to invest in some of the country’s biggest banks with a minimum investment of Rs1,000.  

The Nifty PSU Bank Index 

The fund seeks to optimise returns by investing in the Nifty PSU banks that are relatively undervalued compared to their private peers. The fund will hence reflect the performance of the Nifty PSU Bank Index of the PSU bank stocks traded on the National Stock Exchange (NSE).  

For example, it plans to allocate the resources as follows: The State Bank of India (SBI) will have a weightage of 29.86 per cent, Bank of Baroda (BoB) at 20.21 per cent, Canara Bank at 12.72 per cent, Punjab National Bank (PNB) at 12.56 per cent, Indian Bank at 6.25 per cent, etc. 

Data from the fund house further shows that the Nifty PSU Bank Index has a P/E ratio of 9.77 compared to the Nifty Private Bank Index’s 16.04. Likewise, the dividend yield of the former is 1.61, and the latter is 0.59.