The government has set the ball rolling for setting up an exchange-traded fund (ETF) for central public sector enterprises (CPSEs) comprising stocks of listed companies that will serve as an additional mechanism for the government to monetise its shareholdings.

An ETF is a security that tracks an index like an index fund but trades like a stock exchange. Stocks may have representations from various sector to provide unit holders more diversification.

The department of disinvestment has moved a Cabinet note last week stipulating the broad contours of the ETF, said sources.

"It is proposed that all listed CPSEs, may, in principle, be approved for being considered for the ETF basket. However, the exact number of CPSEs and the names of CPSEs would be decided later on, closer to the launch, depending on the market conditions prevailing at that time," a source said.

ETFs were introduced in India in 2001. At present, there are 33 ETFs having assets under management (AUM) of close to Rs.11,500 crore and held by 6.2 lakh investors. Gold ETFs dominate the ETF market in the country.

Globally, ETFs have been growing at a rapid pace with an annual growth rate of over 34% in the last decade, with AUM of $1.5 trillion at present.