Glance at what is Nifty BeES: While investing in the stock market, you come across the term Nifty 50 several times. This Nifty 50 comprises of top 50 companies in the market and it gives you the general sentiment of the market. Apart from indicating the trend of the market, what if there was a way for you to invest in this index? In order to do this, we have to first understand what is Nifty BeES.
Table of Contents
In this article, we are going to understand what is Nifty BeES, and the various aspects that come under Nifty BeES.
What is an ETF?
An ETF stands for Exchange Traded Fund which is a basket of securities that reflect the composition of an index. Unlike regular mutual funds trading, ETFs are listed on the stock exchange and can be bought and sold in the same way as regular stocks.
These funds track indices like CNX Nifty or BSE Sensex. While the aim of the mutual fund is to generate returns that outperform the market benchmark, an ETF aims to track the movement of the relevant index and mimic its returns.
ETFs also have higher liquidity and lower fees than mutual funds, which makes them an attractive alternative for investors.
What is Nifty BeES?
Now that we have understood the concept of an ETF, let us understand Nifty BeEs. Nifty BeEs is the first ETF introduced in India by BENCHMARK an Asset management company on January 8, 2002.
It is an ETF that tracks the Nifty 50 index. It aims to provide us with returns that closely relate to the returns of the Nifty 50 index. Nifty BeEs is a combination of shares and mutual fund units which is traded on the capital market segment of the NSE.
Each unit of Nifty BeES trades at 1/100th value of the Nifty 50 index. This offers an individual a diversified index at a low cost.
Quick Read: Stock Market Investing for Beginners & Dummies!
What are the constituents of Nifty BeEs?
With the explanation given above, it is understood that investing in Nifty BeES is like buying the shares that constitute the Nifty 50 index. Here’s the composition of India’s well-known Nippon ETF Nifty BeES as on 31st July 2021.
As Nifty BeES replicate the benchmark index, it is rebalanced according to the changes that take place in the composition of Nifty 50
What are the charges for holding Nifty BeEs?
The annual expense ratio of a Nifty BeES is 0.80% of the Daily Average of the Net Asset which includes the management fees. This is the lowest expense ratio for any mutual fund in India. The cost further cuts down to 0.65% for assets with a value of over Rs 500 crores.
Advantages of Nifty BeEs
Here are the advantages of investing in Nifty BeES:
- The process of buying Nifty BeES is simple. It can be bought and sold just like shares through a Demat account.
- The cost incurred on purchasing Nifty BeES is the lowest compared to any mutual fund in India
- Their wont be any bias of the fund manager while structuring the Nifty BeES as it purely replicates the Nifty 50 index
- There is transparency in how much is allocated to each stock as it replicates the Nifty 50 index
- Investing in Nifty BeES gives an investor exposure across all the Nifty shares of Nifty 50 and allows the investor to easily diversify the risk.
- Nifty BeES provides high liquidity from different sources such as buying & selling from the investors and arbitrage from index futures.
- Individuals can hold Nifty BeES as long as they like and need not worry about the expiration date like in NIFty F&O.
Disadvantages of Nifty BeES
- Investors need to provide a full margin while purchasing Nifty BeES as opposed to placing orders in Nifty F&O
- As Nifty BeES constitutes all the stocks of Nifty 50, it can cause over-diversification of your investment.
- The returns from Nifty BeES will be lesser than the returns from mutual funds, as its main purpose is to imitate the movement of Nifty 50.
Also Read: Nifty 50 Companies List – Nifty50 Stocks by Weight (2022)
In Closing
In this article, we discussed what is Nifty BeES, its constituents, its charges, advantages, and disadvantages. In short, Nifty BeES is a replica of Nifty 50 which you can invest in.
Investing in Nifty BeES can help individuals to keep up with the market. Also, it provides the investors with diversification in their portfolio, and consistent investment in this fund can provide the investors a good return on their investment over a period of time.
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Certainly! The Nifty BeES, or Nifty Benchmark Exchange Traded Scheme, is an ETF tracking India's Nifty 50 index, allowing investors to gain exposure to the top 50 companies in the Indian stock market. Here's a breakdown of the key concepts covered in the article:
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ETF (Exchange-Traded Fund):
- An ETF is a basket of securities mirroring an index and is listed on stock exchanges. It differs from regular mutual funds in being traded like stocks.
- ETFs like Nifty BeES aim to mimic the performance of a specific index, such as Nifty 50, and offer higher liquidity and lower fees compared to mutual funds.
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Nifty BeES:
- Introduced by BENCHMARK Asset Management in 2002, Nifty BeES is India's first ETF that tracks the Nifty 50 index.
- Each unit of Nifty BeES represents a fraction of the Nifty 50 index, allowing diversified exposure to the index at a lower cost.
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Constituents of Nifty BeES:
- Nifty BeES comprises the same stocks as the Nifty 50 index. It's regularly rebalanced to match changes in the Nifty 50 composition.
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Charges for Holding Nifty BeES:
- The annual expense ratio for Nifty BeES is 0.80% of the Daily Average of the Net Asset, which includes management fees. For assets over Rs 500 crores, the cost reduces to 0.65%.
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Advantages of Nifty BeES:
- Simple purchase process akin to buying/selling stocks through a Demat account.
- Lowest cost among Indian mutual funds.
- Transparency in allocation and exposure across all Nifty shares, facilitating risk diversification.
- High liquidity from various sources.
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Disadvantages of Nifty BeES:
- Requires providing full margin while purchasing, unlike Nifty F&O.
- Risk of over-diversification due to inclusion of all Nifty 50 stocks.
- Returns may be lower compared to mutual funds as it aims to replicate Nifty 50's movement.
This investment avenue offers simplicity, cost efficiency, and broad market exposure, but investors need to weigh the advantages against the potential drawbacks, especially regarding diversification and margin requirements. The returns might be more aligned with the index performance rather than exceeding it.
