The previous government had set up the exchange traded fund (ETF) last year as a way of selling shares in 10 state-owned companies. It raised 30 billion rupees in an oversubscribed offering as investors welcomed access to a basket of firms.

The government of Prime Minister Narendra Modi, elected last May, hopes to again tap appetite for a fund that has outperformed the Indian market, already one of Asia's strongest performers.

Goldman Sachs, which is the asset manager of the fund, is set to issue the new ETF units before the end of the fiscal year on March 31, the source said.

"We have the finance ministry's go-ahead and are working out the final details," the source, who is directly involved in proceedings said. The source cannot be named as discussions are confidential.

The government has set a target of USD 10 billion to be raised by selling government-held shares, in order to trim the fiscal deficit to a seven-year low by the end of March.

Expanding the Central Public Sector Enterprise (CPSE) ETF would be a welcome lift. The ETF comprises 10 stocks, mixing heavyweights such as Coal India Ltd and Oil & Natural Gas Corporation Ltd  with laggards such as Bharat Electronics Ltd and Engineers India Ltd.

The unit value of the fund has increased 38.8 percent since its launch last March, outperforming a strong 30.6 percent rise in the NSE index during the same period.

To date, the current government has raised USD 3.9 billion of its USD10 billion target, most of it coming from last week's record offering of a 10 percent equity stake in state-run Coal India.

However, plans for a second exchange traded fund announced last year have been put on hold, the source added. The fund was to have been made up of government-held minority shares in non-state firms including ITC, Larsen & Toubro and Axis Bank.

Finance ministry officials declined to comment but said that the government was considering all options to meet its target.

"We are working on many issues," Aradhana Johri, secretary in-charge of the government's disinvestment programme, had said on Friday after the sale of Coal India shares.

A Goldman Sachs spokesman declined to comment. ICICI Securities was not immediately available for comment.

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