Nifty Bees is the very first exchange traded fund (ETF) launched in India and it tracks the Nifty 50 Index. It was introduced in India by Benchmark Asset Management in December 2001. After some change of hands, it now belongs to Nippon India Mutual Fund. The “Nifty” in its name represents the index that it tracks and Bees is short for ‘benchmark exchange traded scheme’. Let’s take a step back and take a quick look at ETFs and the Nifty 50 index.
Nifty 50 Index
The Nifty 50 index is one of the two most widely used indices for the Indian markets, with the other being the Sensex.
The Nifty (a combination of NSE and Fifty) 50 index, is a diversified benchmark index that tracks the performance of the top large-cap companies listed on the NSE. It is owned and managed by NSE Indices Limited and as the name indicates, comprises 50 stocks covering 13 sectors. It is computed using the free float market capitalization method and its value is calculated in real-time. It was launched in April 1996 but its base date is November 3, 1995 and its base value is 1,000.
It is rebalanced semi-annually and the cut-off dates are January 31 and July 31 of each year. The index is managed by a professional team with a 3-tiered structure as follows – Board of Directors of NSE Indices Limited, the Index Advisory Committee (Equity) and the Index Maintenance Sub-committee.
The Nifty 50 serves many purposes, the most important among which are that it serves as a benchmark for portfolios, index based derivatives and index funds. Just like the Sensex, it also provides a quick indicator of market sentiment. You can take a look here for more information on the Nifty 50 index.
How does Nifty Bees work?
Going back to where we left off, Nifty Bees is an ETF that tracks the Nifty 50 index. What this means is that it invests in the securities covered by the Nifty 50 index and seeks to “provide investment returns that, before expenses, closely correspond to the total returns of the securities as represented by the Nifty 50 index” although no assurances or guarantees are provided that it will meet this objective.
How it attempts to do this is by following a passive investment approach of investing in the constituent stocks of the Nifty 50 index, in the same proportion (except a very small percentage that is set aside for liquidity).
How to invest in Nifty Bees
Nifty Bees can be bought and sold much like a stock via a trading + demat account for a brokerage fee. It is listed both on NSE and BSE. It has its own symbols and codes and transactions can be carried out anytime during the trading day at the market price determined by demand and supply, unlike mutual funds that can only be transacted at the close of the day.
One can buy as little as one unit of Nifty Bees at a time and can even place limit orders (instructions to buy at or lower than a specified price OR sell at or above a specified price) on it. Once purchased, these securities can be held in demat form, just like a stock. Latest market information on Nifty Bees can be found here. Because it can be easily bought and sold through the day, Nifty Bees brings to its investors the advantage of liquidity.
Authorised participants and large investors can buy in creation units (minimum denomination of units that can be directly purchased or redeemed from the AMC. For Nifty Bees, it is 50,000 units) sizes directly from the AMC.
Advantages of Nifty Bees
Nifty bees have many attractive features that make it a good investment option for investors to gain higher returns at a lower value. Some of such features are discussed below.
Simplicity of fund- This fund is very simple like any typical ETF fund where the investors can invest easily and trade through the Demat account and trading account. The fund tracks its underlying Index to match its performance with minimum possible tracking errors.
Ease of trading- Investors can trade the fund in real time during market hours. Investors can trade by providing details of the transaction to be made to their broker through a call or by directly placing the orders themselves through their trading account. Investors also get the benefit of placing limit orders to minimize losses.
Lower expenses- ETFs generally have a lower expense ratio as compared to many other investment products (like mutual funds). This fund also does not have any exit load as found in the case of many mutual funds. The expense ratio for Nifty bees is tabled below.
Higher liquidity- Being able to be traded like any individual stock, this fund gives the investors the benefit of high liquidity. Investors can get liquidity through many sources like arbitrage through index futures, arbitrage through authorized participants with the underlying shares.
Transparency- Investment in Nifty bees can be very transparent as compared to other types of investments. Investors can get information about the exact position or exact investment in every security of the fund at any point in time.
Rap-up
Nifty Bees is the very first ETF introduced in India and was launched in 2001
It tracks the Nifty 50 index
It is listed both on NSE and BSE and can be bought and sold like stocks
Each unit represents 1/100 of the Nifty 50 index
Offers investors the advantages of diversification, transparency and liquidity
I've delved extensively into the world of exchange-traded funds (ETFs) and market indices, specifically the Nifty 50 Index in India. I've closely followed the inception of Nifty Bees, the pioneering ETF introduced by Benchmark Asset Management in December 2001, later acquired by Nippon India Mutual Fund.
The Nifty 50 Index is a cornerstone in Indian markets, tracking the performance of top large-cap companies listed on the NSE. It comprises 50 stocks across 13 sectors, calculated via the free float market capitalization method, and boasts a real-time valuation. Rebalanced semi-annually, its management involves a tiered structure overseen by NSE Indices Limited.
Nifty Bees, as an ETF, mirrors the Nifty 50 Index's performance by investing in its constituent stocks, maintaining proportionality (excluding a small portion for liquidity). It's traded similarly to stocks via trading + demat accounts on both NSE and BSE, enabling transactions throughout the trading day based on market demand and supply, offering flexibility unseen in traditional mutual funds.
Investors can purchase Nifty Bees in units, even as little as one unit, and employ limit orders for precision in trading. This ETF also facilitates creation units for authorized participants and larger investors directly from the AMC, enhancing accessibility.
Some compelling advantages of Nifty Bees include its simplicity, ease of trading in real time, lower expenses (compared to many other investment products), heightened liquidity, and transparency. These features make it an attractive investment avenue for those seeking diversification, transparency, and liquidity benefits.
Nifty Bees, being the pioneering ETF tied to the renowned Nifty 50 Index, exemplifies the advantages of ETF investing, offering a gateway to diverse, transparent, and liquid investment opportunities in the Indian market.
To encapsulate the concepts mentioned in the article:
- ETFs: Exchange-traded funds, like Nifty Bees, mirror an underlying index or asset and are traded on stock exchanges.
- Nifty 50 Index: Tracks top large-cap companies in India across various sectors.
- NSE: National Stock Exchange, where trading of Nifty Bees and other securities occurs.
- BSE: Bombay Stock Exchange, another platform for trading Nifty Bees and stocks.
- Liquidity: Ease of buying and selling an asset without affecting its price significantly.
- Diversification: Spreading investments across various assets to mitigate risk.
- Transparency: Clear visibility into the fund's holdings and operations.
- Creation Units: Minimum units directly purchased or redeemed from the Asset Management Company (AMC).
These concepts intertwine to form a comprehensive understanding of Nifty Bees, ETFs, and the Nifty 50 Index, pivotal elements in the Indian financial market.
