NIFTY BeEs, or the NIFTY Benchmark Exchange Traded Scheme, is India’s first ETF and was launched back in January 2002. It replicates the S&P CNX Nifty Index and is traded on the National Stock Exchange (NSE).
An ETF, or an Exchange Traded Fund, is a type of security that tracks a particular index, sector, commodity or another type of asset. It can be a combination of a mutual fund and equities as well. ETFs can be structured in such a way that they can track a group of commodities or even investment strategies.
With respect to the NIFTY BeEs, each unit of the ETF is the equivalent of 1/10th of the value of the S&P CNX Nifty Index. They are held and transacted in a demat account. Its market price is represented by its Net Asset Value or NAV, which is the per-unit market value of all the securities held by the fund.
It is one of the most economical funds that an investor can buy into as its expense ratio upto INR 500 crore AUM is just 0.80%. Beyond this point, the ratio drops to 0.65%. ETFs in general are also very liquid funds to own. They can be easily traded on the capital markets with the exchanges even giving investors the opportunity to place limit orders on their funds. On top of all this, the NIFTY BeEs ETF is by definition a very diverse fund as it holds shares in all 50 companies listed on the index.
Investors have the option to invest in the fund through either the systematic route or via a lump sum investment, much like a mutual fund. The systematic route gives investors the opportunity to participate at every level of the market, as investments are generally made on a monthly basis. With a lump sum investment, investors need to have a fairly good handle on the cyclical nature of the market and buy when the markets are correcting.
The above is a snapshot of NIFTY BeEs ETF performance over the last five years, taken from Google Finance. As we can see, the fund moves in a steady manner which is indicative of the state of the economy. The big dip we see on the right hand side occurred last year towards the end of March and the beginning of April when markets around the world were crashing due to the onslaught of COVID-19. Since then, the fund has recovered very well, having generated returns in excess of 80%.
NIFTY BeEs ETF also on occasion offers dividend payouts, but this depends on whether the scheme has surplus funds available or not. The trustee of the scheme takes the decision, but there is no guarantee about the amount or frequency of dividend payouts. TDS taxes are applicable on the payout and once the dividend is paid, the NAV of the fund gets reduced by the amount paid out.
The amount of money being invested into ETFs has grown substantially in the last few years. Research shows that millennial investors in particular like to purchase these funds due to their simplicity. It does not require the knowledge of a seasoned investor and the returns generated beat that of a bank and are also quite stable. As of 2020, the total amount invested in ETFs worldwide stood at $7.74 trillion, up from $1.31 trillion in 2010.