Nifty BeES – you can’t deny that, it is quite an interesting name for a security and no, it has nothing to do with insects of any kind. So what is Nifty BeES? Here is a quick look at what it is, how it works and what its name means.
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.
What is an ETF?
Popularly credited with combining the benefits of mutual funds and trading in stocks, ETFs are a type of security that can be bought and sold on an exchange much like a stock. An ETF will track an underlying asset, index, commodity or currency. In this case, Nifty BeES tracks the Nifty 50 index.
Shares of an ETF can be freely bought and sold on an exchange much like a stock. These represent proportionate ownership in the underlying portfolio or basket of securities / assets and the forces of demand and supply determine the price at which the ETF trades on the exchange. There are several types of ETFs based on what they track – an index, a commodity, a currency, or even an investment style. ETFs provide investors exposure to the underlying asset and seek to closely track its performance.
It is, however, possible for the ETF to trade at above or below its NAV though not usually on a long term or sustained basis. This presentation by Nippon India Mutual Fund gives an overview of ETFs, Nifty BeES and the other ETFs managed by the AMC.
What is the 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.
The latest fact sheet of the Nifty 50 index can be found in this ‘Nifty indices link under downloads section’.
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).
Constituents of Nifty BeES
Based on the above, investing in Nifty BeES is like investing in a basket of shares which are basically the components of the Nifty 50 index and by that logic, the top constituents of the index (above) will also be the top constituents of Nifty BeES. The top constituents of Nifty BeES by sector is as follows with Banks accounting for the highest share at 25.17%. The latest information on Nifty BeES and its constituents can be found here.
What is 1 unit of Nifty BeES?
The face value of one unit of Nifty BeES is Rs. 1. Each unit represents approximately 1/100 of the Nifty 50 index and so, by buying just one unit of Nifty BeES, an investor instantly gets the benefit of diversifying across 50 large stocks without any hassle. Since it is a passively managed portfolio, there is transparency regarding the composition of the portfolio and no fund manager bias.
This also means its expenses are low and Nifty BeES boasts of one of the lowest expense ratios in India. Since it is listed on an exchange, it does not incur large distribution costs either. Nifty BeES is also a no load scheme.
Returns and NAV of Nifty BeES
While Nifty BeES does not try to ‘beat the market’, it boasts of a 1-yr CAGR of 52.1% as on 31 August, 2021. More information on the performance of Nifty BeES can be found here and the detailed scheme document can be found here.
Nippon India Nifty BeES has not declared any dividends for the past several years but once it is declared, it will be paid within 30 days and the NAV of the scheme will be reduced by that amount. The NAV as on 28 September 2021 stands at Rs. 191.2170 and latest NAV information of Nifty BeES can be found here. Please note that the dividends received by the ETF are only added to the NAV. That is not distributed.
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. The detailed product note for Nippon India Nifty BeEs can be found here.
Summary
- 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
Details of the fund can be found here
