MC30 Scheme Review | This 20-year-old mutual fund remains the best ETF to invest in Nippon India ETF Nifty BeES is an excellent choice for those who wish to avoid fund managers’ risk and invest in equity markets at a low cost. The fund is a part of MC30, Moneycontrol’s curated basket of mutual fund schemes you can invest in
July 06, 2022 / 09:52 AM IST
Many Indian investors have begun warming up to passive investing. Market volatility also has underlined the need to have at least a partial allocation to passive funds. Nippon India ETF Nifty BeES (Nifty BeES) is an excellent option to invest in. This is particularly true for beginners with no prior investment track record. It is an ETF or exchange-traded fund tracking the performance of Nifty 50 index (N50) and traded actively on the exchanges. ETFs are mutual fund schemes traded on the BSE and the NSE just like equity shares. An ETF simply invests its entire corpus in all the securities and in the same proportion as its benchmark index composition. The aim is neither to outperform nor underperform the benchmark index. An ETF aims to give market returns. It is a low-cost fund that eliminates fund manager risk. You need a demat account to buy an ETF.
N50 is a well-diversified 50-stock index and represents important sectors of the economy. According to NSE India, N50 covers 13 sectors and represents about 66.8 percent of the free float market capitalisation of the stocks listed on NSE as on March 29, 2019. Hemen Bhatia, head, ETF, Nippon Life India Asset Management Company (AMC), says, “It is an important barometer of the Indian economy. By investing in Nifty BeES, investors can participate in the growth story of the economy.” Nifty BeES is India’s first ETF scheme, launched in December 2001.
N50 constitutes the top 50 giant blue-chip stocks that are financially strong and have the potential to grow. Since they are well-established businesses, they may grow at a slower pace than newer kids on the block, but can deliver consistent returns. They can also cope with market falls relatively well. The above drawdown chart exhibits that the N50 not only corrected less in market corrections but also recovered faster in comparison to mid- and smallcap counterparts, helping deliver a balanced return. Investors with demat account can consider investing in the Nifty BeES and hold for five years or more.
Over the long run, the Nifty 50 index has delivered notable returns. Performance as measured by 10-year rolling returns calculated over the last 20 years shows that Nifty 50 Total Returns Index delivered a compound annual growth of 13 percent.
N50 is a well-diversified 50-company index computed using the free-float market capitalisation method. According to NSE’s research paper, there have been 12 companies in Nifty 50 since its inception in 1996. Its top 10 stocks constitutes 59 percent of the total assets of companies listed on the bourse. However, N50 has a concentrated sector exposure wherein its top three sectors comprise about 54% of its total assets
Most of the stocks are long-term holdings that paid off very well over the last two years. Its diversified allocation across sectors helped. Stocks like Tata Motors, Tata Steel, Bajaj Finance and Hindalco Industries more than tripled in value in the last two years.
Among the Nifty 50 ETFs, Nifty BeES scores well on all parameters including lower tracking error, lower expense ratio and higher traded volume.
Limited liquidity has been a cause of concern in the Indian ETFs landscape for years. However, the Nifty BeES has been the most actively traded equity ETF in India, touching its record mark of a single-day traded volume of Rs 351 crore on the NSE recently. It is worth noting that the total traded volume in Nifty BeES in the first half of calendar year 2022 is higher than the total traded volume of the ETF in 2021. Bhatia of Nippon Life India AMC says, “We have seen increased participation across investor categories such as retail, HNIs (high net-worth individuals) and family offices since the onset of COVID, leading to a massive rise in volumes.” Higher liquidity helps investors to buy the units of ETFs at the desired price, leading to lower impact cost. Higher liquidity also results in narrowing bid-offer spreads. For instance, the impact cost for Nifty BeES on NSE was 0.03 percent (June 29, 2022).
During trading hours, the spot price of the ETFs may trade at a premium or discount to their iNAVs (indicative net asset values). This occurs due to illiquidity and less-active market makers. Market makers are authorised participants appointed by the AMCs to keep the spot price close to the fair value. If the price of the ETF trades above its iNAV, the ETF is said to be trading at a premium, and if the price is below its iNAV, it is said to be trading at a discount. This leads to higher impact costs. Active trading mechanism provided to Nifty BeES leads to minimal difference between the spot price and NAV, which, in turn, results in low impact cost.