In this article:
- What are Nifty BeEs?
- What is the Composition of Nifty BeEs?
- What is the Use of Nifty BeEs?
- What are the features / advantages of Nifty BeEs?
- Three Things to Keep in Mind while Investing in Nifty BeEs
- Performance of Nifty BeEs since Inception
- Nifty BeEs Vs Actively Managed Mutual Funds
- FAQs on Nifty BeEs
What are Nifty BeEs?Nifty BeEs is a collection of the fifty biggest stocks in India. When you buy one unit of Nifty BeEs, you are investing in fifty stocks. Nifty BeEs is nothing but a derivative of Nifty. This means that it does not have any value of its own. Its value is dependent on the value of Nifty. If Nifty falls, Nifty BeEs will also fall and vice-a-versa. This is similar to you ordering a Thali in a restaurant. You get a variety of dishes. The combined cost of these dishes is lower than the price of individual items. So, you get the same taste but at a fraction of the cost. Nifty BeEs also gives you exposure to fifty different stocks at a fraction of the cost. Nifty BeEs is a combination of stocks and mutual funds. Like a mutual fund, it collects money from various investors. This collected money is then used to buy fifty stocks of Nifty. Like shares, Nifty BeEs can be sold on a stock exchange during trading hours. The face value of Nifty BeEs is Re 1. Its market value is approximately 1/10th the value of Nifty. For example: The value of Nifty on 4th June 2021 is 15,670. The value of Nifty BeEs on the same date is Rs 168.59 (approximately 1/10th).
Sector-Wise Composition of Nifty BeEsNifty BeEs is mostly dominated by banks with an exposure of 26.12%. Information and Technology (IT) sector has an exposure of 16.51% in Nifty BeEs. The Top 10 holdings of Nifty BeEs are:
What is the Use of Nifty BeEs?You must be thinking…but why should investors invest in Nifty BeEs? Why not buy individual stocks? Two reasons…Cheaper and Simpler. To buy one share each of Nifty 50 stocks, you will have to pay Rs 1,39,065 (as on 4th June 2021). But you can invest in the same 50 stocks via Nifty BeEs in just Rs 168.59. This makes Nifty BeEs pocket friendly for retail investors. Investing in Nifty BeEs is simpler than investing in fifty individual stocks. Normally, post investment you have to constantly monitor and rebalance your portfolio to match Nifty’s allocations. This leads to high brokerage costs and taxes. But any changes in Nifty is automatically reflected in Nifty BeEs. Investors do not have to spend their time or pay taxes in rebalancing their portfolios. Like Nifty BeEs, there are various types of BeEs or ETFs available in India: · Liquid BeEs Invests in a basket containing money market instruments issued by the government. For example: bonds, treasury bills etc. · Bank BeEs invests in a collection of top banks with Bank Nifty as the benchmark index. · Gold BeEs invests in Gold. It aims to replicate the returns of domestic gold at a fraction of the cost. · Bharat Bond ETF invests in a basket of Public Sector Units (PSUs) owned by the central government. The reason for the popularity of Nifty BeEs is its low expense ratio. The expense ratio of Nippon India ETF Gold BeEs is 0.82%. Whereas the expense ratio of Nifty BeEs is only 0.05%. A low expense ratio directly increases your returns.
Why is Nifty as a Benchmark Popular? Why not Sensex?Sensex is the oldest index in India. But Nifty is the most traded. It has a deep futures and options (F&O) segment. In fact, Nifty 50 stocks contribute to 67% of the entire NSE’s trading volume. This makes Nifty 50 an opportunity rich index. It is broader than the 30 stocks tracked by Sensex. Even performance wise, Nifty 50 index has outperformed all other benchmark indices. As you can see, Nifty 50 Total Return Index (TRI) has outperformed the other indices in short-term and long-term.
What are the Features of Nifty BeEs?1. High Liquidity: Nifty BeEs are highly liquid as they are traded on NSE. NSE has a huge F&O segment which attracts foreign institutional investors (FII) and big traders. This creates ample liquidity for retail investors to enter or exit their positions smoothly. 2. Real-Time Price Discovery: Unlike mutual funds, you can buy and sell Nifty BeEs throughout the trading hours. In mutual funds, every investor is allotted units as per the closing net asset value (NAV). So, all investors get units at the same price. There is no partiality or scope for active trading. But in case of Nifty BeEs, investors can trade in the stock market like stocks. They can buy when markets are down and sell once markets bounce back. This is why Nifty BeEs are popular among traders. 3. Dematerialised Form: You can trade in Nifty BeEs only if you have a Demat and trading account. The settlement takes place in T+2 days like stocks. The settlement takes place on an exchange which reduces the counterparty risk. 4. Pocket friendly: Nifty BeEs gives you the opportunity to invest in fifty of the top stocks in India with a small sum of Rs 500. You can invest via both lumpsum and systematic investment plan (SIP) in Nifty BeEs. 5. Diversification: When you invest in Nifty BeEs, you get a share of all fifty companies spread across 22 sectors. These include Banking, Pharmaceuticals, Infrastructure etc. So, you do not miss out on any sector-specific opportunity. 6. No Fund Manager Bias: Nifty BeEs is a passively managed ETF. The fund manager does not aim to beat Nifty’s returns. His only job is to mirror the index. This reduces human error or bias. Because of this passive management, the expense ratio of Nifty BeEs is extremely low. This results in higher returns for investors. The below table shows the performance of Nifty BeEs against other mutual fund categories: As evident in the above table, Nifty BeEs has generated almost similar returns as Nifty 50 TRI, Large-cap funds and ETFs. However, they have underperformed midcap and small cap mutual funds. 7. Transparency: Investors are mostly unaware of where the fund manager is investing their hard-earned money. But in Nifty BeEs, the fund manager does not deviate from Nifty’s portfolio allocation. This way investors are aware of where their money is invested. 8. Low Expense Ratio: This is the biggest advantage of Nifty BeEs over index mutual funds. Expense ratio is the cost charged by the fund house to manage your money. It is deducted from a fund’s NAV. So naturally, higher the expense ratio, lower the scheme’s NAV and returns will be. For example: Tata Index Fund – Nifty Plan tracks Nifty 50. Its expense ratio is 0.51%. On the other hand, the expense ratio of Nippon India ETF Nifty BeEs is 0.05%. That’s a difference of 0.46%. This seems small but can cause a big compounding difference over 20 to 30 years. 9. No Exit Loads: Nifty BeEs do not have exit loads. You can redeem them within minutes. This option is not available in index funds. You cannot invest in an index fund at 11 am and redeem at 11.30 am on the same day. But this is possible in the case of Nifty BeEs. However, you will have to pay short term capital gains tax on your gains. 10. No Worry About Expiry: In case of Nifty F&O, you need to compulsorily settle your contract on expiry whether you are in profit or loss. You cannot hold a Nifty F&O contract for perpetuity. This led to huge losses for investors who were forced to settle on expiry. But in case of Nifty BeEs, investors are long-term owners of Nifty. They do not have to worry about expiry or settle contracts in losses.
Three Things to Keep in Mind While Investing in Nifty BeEs
- Tracking Error: This is the difference between the returns generated by Nifty BeEs and the benchmark index. Ideally, there should be minimum tracking error. Let us look at the tracking error of Nifty BeEs and Nifty based ETFs.
- Expense Ratio: This is where Nifty BeEs have a true advantage over index mutual funds. A low expense ratio has a direct positive impact on your returns. The below table shows the expense ratio and returns of top 5 index mutual funds against Nippon India ETF Nifty BeEs.
- Liquidity: Fortunately for investors, Nifty BeEs is highly liquid. The introduction of nifty based index funds has brought in higher liquidity to Nifty BeEs. Compared to Liquid BeEs, Nifty BeEs offer superior liquidity. But it still has a long way to go to match the liquidity of Gold BeEs.
Performance of Nifty BeEs Since InceptionSince its launch in January 2002, Nifty BeEs has generated a compounded annual growth rate (CAGR) of 15.87%. The value of Rs 1 Lakh invested in the above benchmarks would have generated the following returns:
|Nifty 50 TRI||1,49,890||1,41,350||1,98,690||18,53,410|
|S&P BSE Sensex TRI||1,46,260||1,43,770||2,02,600||20,49,730|
CAGR of Nifty BeEs Vs Nifty 50 TRI and S&P BSE Sensex TRI
|Instrument||1 Year CAGR||3 Years CAGR||5 Years CAGR||Since Inception|
|Nifty 50 TRI||49.89%||12.22%||14.70%||16.29%|
|S&P BSE Sensex TRI||46.26%||12.85%||15.15%||16.89%|
FAQs on Nifty BeEs1. What are Nifty BeEs? Nifty BeEs is a basket containing 50 stocks of Nifty 50 Index. It is India’s first exchange traded fund. It was launched by Nippon India Mutual Fund in January 2002. It is also known as Nippon India ETF Nifty BeEs. It is one of the cheapest investment options with an expense ratio of 0.05%. Nifty BeEs has generated a CAGR of 15.87% since its inception. 2. Is Nifty BeEs Safe? Nifty BeEs is a carbon copy of Nifty. Since it is linked to the stock market, Nifty BeEs are not as safe as a bank FD or even a debt fund. But it is safer than midcap or small cap stocks as it invests in top 50 large-cap companies in India. 3. Which Nifty ETF is best for investment? Nippon India ETF Nifty BeEs is the best nifty based ETF for investment. However, investors can also opt for Nifty based mutual funds with low expense ratio and minimum tracking error. 4. Does Nifty BeEs give Dividend? No. Nifty BeEs hasn’t given dividends since 2015. 5. How are Nifty BeEs taxed? Nifty BeEs follow equity taxation.
- If you sell Nifty BeEs before 12 months, a flat short term capital gains tax of 15% is applicable.
- If you sell Nifty BeEs after 12 months, a 10% long term capital gains tax is applicable if gains exceed Rs 1 Lakh in a financial year.
|HDFC Bank Ltd||9.71%|
|ICICI Bank Ltd||6.56%|
|Kotak Mahindra Bank Ltd||4.05%|
|Hindustan Unilever Ltd||3.32%|
|Axis Bank Ltd||2.83%|