Everything About Bank BeEs in India

Banks are one of the cornerstones of India’s economy. So, it doesn’t take a genius to realise that investing in banking stocks is a sure shot way of creating wealth. But the question is … which banks should you invest in? Options are plenty…there are 23 private sector banks and 12 public sector banks (PSU) listed in India. Investing in each of these 35 individual banks is costly and managing them can be a nightmare! Luckily for investors, there is a pocket friendly way of investing in the biggest banks in India – Bank BeEs. Bank BeEs is a basket containing India’s ten biggest banks. It is an exchange traded fund (ETF) which combines both mutual funds and stocks. Like a mutual fund, it collects money from various investors. This pooled money is then invested in the ten biggest banks in India. Like a share, Bank BeEs can be bought and sold anytime during the market hours. They do not have a fixed Net Asset Value (NAV) like mutual funds. In this article we will take a detailed look at Bank BeEs including: 
  • What are Bank BeEs?
  • What is the composition of Bank BeEs?
  • 10 Advantages of Bank BeEs.
  • Bank BeEs Vs Banking Sector Mutual Funds
Let us begin with what are bank BeEs.

What are Bank BeEs? 

BeEs stands for Benchmark Exchange Traded Scheme. Bank BeEs is an exchange traded fund which invests in only banking stocks. It was launched by Nippon India Mutual Fund (formerly Reliance Nippon Mutual Fund) on 27th May 2004. The full form of Bank BeEs is Nippon India ETF Bank BeEs. It is benchmarked to the Nifty Bank Index which contains 12 of the biggest most liquid banking stocks listed on the National Stock Exchange (NSE). The aim of Bank BeEs is to mirror the returns of the country’s top ten banks at 1/100th the cost. For example: The price of 1 unit of Bank Nifty is Rs 34,800 as on 9th June 2021. On the same day, the NAV of Bank BeEs is Rs 351.40 (roughly 1/100th of Rs 34,800). 95% of Bank BeEs corpus is invested as per Nifty Bank Index. The remaining 5% is invested in money market instruments like Treasury Bills, Certificates of Deposits. Bank BeEs are highly popular in India compared to other BeEs. The Assets under Management (AUM) of Bank BeEs is Rs 8,257 crores.
Bank BeEs

What is the Composition of Bank BeEs? 

Bank BeEs
Bank BeEs has 86.78% exposure to private sector banks. There is only one public sector bank in Bank BeEs – State Bank of India which enjoys 11.74% exposure. A high exposure to private banks is both good and bad. Private sector banks are fundamentally stronger and their financial performance is substantially better than PSU banks. But since these banks are privately owned, internal regulatory matters are rarely made public. This happened in the case of Yes Bank, Lakshmi Vilas Bank etc. So, while Bank BeEs have the potential to generate superior risk, they do carry high risk. For investors looking to invest in PSU banks, Nippon India ETF PSU Bank BeEs is an alternative. It contains the biggest public sector banks in India. The below graph shows the performance of various banking sector indices over a 10-year period.
Bank BeEs
Except for the last one-year, Nifty Bank TRI has beaten all other banking indices. It has especially outperformed Nifty PSU Bank TRI by a staggering 16.75% in the last three years.

10 Advantages of Bank BeEs 

  1. Pocket Friendly: To purchase one stock each of the ten banks in Bank BeEs, you will need Rs 7,519 (as on 9th June 2021). But with Bank BeEs, you can invest in the same ten stocks with just Rs 351.40.
  1. Less Risky Compared to Sectoral Mutual Funds: Even the mutual fund universe has banking themed sectoral funds. For example: SBI Banking & Financial Services Fund invests in nearly 28 different banks. While these funds are high on diversification, they do have a small flaw. They invest a sizable portion in stocks like ICICI Prudential Life Insurance Company Ltd, CSB Bank Ltd.etc. Such low rated stocks make sectoral funds riskier than Bank BeEs.
  1. Low Expense Ratio: Bank BeEs are passively managed ETFs. The aim of the fund manager is not to outperform the benchmark. His aim is to simply mirror the returns of the Nifty Bank index. The fund manager creates an exact replica of the index. This eliminates the research and management costs of ETFs. This is why Bank BeEs have an exceptionally lower expense ratio compared to actively managed funds.
Bank BeEs
The average expense ratio of top ten banking sector mutual funds is 1.07%. In comparison, the expense ratio of Bank BeEs is only 0.18%. That’s a difference of 0.89%. This high expense ratio is the primary reason why Bank BeEs generate superior returns than banking sector mutual funds.
  1. Superior Returns: Lower expense ratio directly increases your fund’s returns. Since Bank BeEs has the lowest expense ratio, it has generated superior returns than actively managed mutual funds.
Bank BeEs
Notice that the funds with high expense ratio have generated the lowest returns. For example: Invesco India Financial Services Fund’s expense ratio is 1.18%. It has underperformed Bank BeEs by a whopping 11.26%. Whereas even though they are passively managed, Bank BeEs has generated superior returns than actively managed banking sector funds. But there are some exceptions: Despite a high expense ratio these funds have outperformed Bank BeEs. However, Bank BeEs has beaten the majority of the actively managed banking sector funds.
  1. High Liquidity: Bank BeEs are highly liquid. They are twice as liquid as Nifty BeEs. This liquidity encourages participation of institutional investors. A highly liquid environment nurtures futures and options (F&O) trading in Nifty Bank index. This also provides an opportunity for retail investors to make money in Bank Nifty without worrying about their exits. As you can see, there has been a 585% absolute increase in the turnover of Bank BeEs between 2017 and 2020.
Bank BeEs
  1. No Pressure of Contract Expiry: Before Bank BeEs, you could only invest in Nifty Bank index via F&O. This required higher capital for margins. Contracts were compulsorily settled every month. Investors who were facing a loss were forced to close their positions. This led to lack of retail participation in Bank Nifty trading. But with Bank BeEs, investors do not have to worry about expiry or closing a position in loss. They can hold Bank BeEs units perpetually.
  1. No Exit Loads: Bank BeEs is a combination of shares and mutual funds. So, like a share it has no exit load. You can invest in Bank BeEs at 11 am and redeem at 11.30 am on the same day. There is absolutely no penalty by the fund house. This is unlike mutual funds where investors have to pay an exit load. For example:
  • SBI Banking & Financial Services Fund charges an exit load of 0.5% for redemption within 30 days.
  • Invesco India Financial Services Fund charges 1% for redemption within 365 days.
Such a lock-in is not there in Bank BeEs. Investors have the freedom to invest and withdraw as they wish.  This gives them the opportunity to trade intraday in Bank BeEs.
  1. Allows Intraday Trading: Intraday trading refers to quick short-term buying and selling of stocks. It is impossible in mutual funds as all investors are allotted the same closing NAV. But despite being a mutual fund, you can do intraday trading in Bank BeEs.
For example: Suppose you invested Rs 1 Lakh in Bank BeEs on 10th June 2021. You received 28.50 units at a NAV of Rs 350.80 at 9.15 am. The following will be your position during the day.
Time NAV Units Profit/Loss Profit/Loss
10.15 am Rs. 349.59 285.0627 99,655 345
11.15 am Rs. 349.60 285.0627 99,658 342
12.15 pm Rs. 350.55 285.0627 99,929 71
1.15 pm Rs. 350.47 285.0627 99,906 94
2.15 pm Rs. 351.66 285.0627 1,00,245 -245
3.15 pm Rs. 352.64 285.0627 1,00,525 -525
3.30 pm Rs. 352.80 285.0627 1,00,570 -570
In Bank BeEs, you have the option to redeem at 11.15 am at a profit of Rs 342. This option is not available in mutual funds. Hence Bank BeEs are great for intraday trading.
  1. Least Tracking Error: Tracking error is the difference between the returns generated by your fund and its benchmark. Bank BeEs have the lowest tracking error. This directly benefits the investors as they earn near-exact returns as the benchmark index.
Bank BeEs
As you can see, Bank BeEs have the lowest tracking error. Whereas S&P Bankex TRI has the highest tracking error.
  1. No Fund Manager Bias: A fund manager is like the captain of a ship. He decides which stocks to invest in, when to book profits in a stock etc. Majority of the time, a fund benefits from his experience. But what if the fund manager holds a personal bias towards a stock?
What if the fund manager exposes a major chunk of your portfolio to a single stock? Worse…what if this stock tanks? All this is eliminated with Bank BeEs. The fund manager does not have the freedom to alter the fund’s portfolio. This way even the investors are well aware of the fund’s portfolio at all times. After understanding the basics and advantages of Bank BeEs, it’s time to have a closer look at the performance of Bank BeEs.

Performance of Bank BeEs. 

The value of Rs 1 Lakh invested in Bank BeEs would be worth the following:
Bank BeEs
As you can see, Bank BeEs has perfectly mirrored Nifty Bank TRI in a one to five-year period. However, it has underperformed the index since its inception. This begs the question…’Is investing in Bank BeEs worth it?’ The answer depends on the composition of Bank BeEs. As we saw earlier, Bank BeEs are heavily exposed to private banks. While this helps the performance, it does make Bank BeEs riskier. Performance wise, Bank BeEs is only as good as its individual stocks. It invests in ten bank stocks. Off these, 84.14% exposure is to four and five star rated stocks. Whereas 14.38% exposure is to 0.5 and one star rated stocks. So, you would be getting a mixed bag when you invest in Bank BeEs. Hence, investors should cap their exposure to Bank BeEs at 10%-15% of the overall portfolio. The remaining should be invested in fundamentally strong stocks. Here is the list of the best long-term stocks to buy in India. A Demat account is compulsory to invest in Bank BeEs and stocks. So, open the best Demat account in India for FREE with Samco Securities today.

FAQs on Bank BeEs

  1. What is the difference between Bank BeEs and Nifty BeEs? 
Bank BeEs is a collection of the top 10 banks in India. Whereas Nifty BeEs is a collection of 50 biggest stocks in India. Bank BeEs is more compact and sectoral. Whereas Nifty BeEs contains stocks from more than 22 sectors.
  1. What is the expense ratio of Bank BeEs? 
The expense ratio of Bank BeEs is 0.18%.
  1. Are Bank BeEs safe? 
Bank BeEs are linked to the market so they are not safe from market risks. Their NAV fluctuates like normal stocks. 4. Do Bank BeEs provide dividends?  No, Bank BeEs has declared dividends only eight times since its inception in 2004:
Dividend Date Dividend (Rs/Unit)
20-02-15 130
11-03-14 110
12-03-13 180
09-07-09 100
16-01-09 50
11-09-07 50
08-01-07 70
Bank BeEs hasn’t declared dividends since 2015.
  1. Which are the Best Bank BeEs? 
Nippon India ETF Bank BeEs is the best Bank BeEs in India as it has the lowest expense ratio (0.18%) and least tracking error.
  1. How are Bank BeEs taxed? 
Bank BeEs invest in bank stocks which are equity in nature. Hence, equity taxation is applicable on Bank BeEs.
  • If you sell your units within 12 months, a flat short term capital gains tax of 15% is applicable.
  • On selling units after 12 months, a long term capital gains tax of 10% is levied if gains exceed Rs 1 Lakh in a financial year.
  1. What is Nippon India ETF PSU Bank BeEs? 
Nippon India ETF PSU Bank BeEs invests in only public sector banks. Whereas Nippon India ETF Bank BeEs invests in both private and public sector banks.

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