Nifty Bees: What it is and how to invest?
Nifty Bees is the very earliest exchange-traded fund (ETF) launched in India. It tracks the Nifty 50 Index. It was inaugurated in India by Benchmark Asset Management in December (2001). After some change of hands, it now is in the hands of Nippon India Mutual Fund. The ‘Nifty’ as its name represents is the index that tracks Bees. The full form of Bees is a ‘benchmark exchange-traded scheme’. Let’s Know nifty bees: What it is and how to invest?
Let’s now understand what is ETFs and the Nifty 50 index?
ETF
An ETF is a container of securities, shares that are sold on an exchange market. They merge features and potential interests particularly similar to those of stocks, mutual funds, or bonds. Individual stocks, ETF shares are traded all over the day at prices that varies based on supply and demand.
The interests of mutual funds and trading in stocks, ETFs are the kind of security that can be bought and sold on an exchange market much like a stock. An ETF tracks an underlying asset, index, commodity or currency. In this case, Nifty Bees tracks the Nifty 50 index.
Shares of an ETF can be easily bought and sold on an exchange market much like a stock. They represent commensurate ownership in the container of securities/assets and the forces of demand and supply determine the price at which the ETF trades on the exchange in the market. There are alternative types of ETFs that are established on what they track – an index, a commodity, a currency, or even an investment style. ETFs provide investors with exposure based on the assets and seek to closely track their durability.
Possibly for the ETF to trade at high or low. It’s NAV though not usually on a long term or sustained basis.
Nifty 50 Index
The Nifty 50 index is one of the two most largely used indices for the Indian markets, with the other being the Sensex.
The Nifty 50 index, is a diversified benchmark index that imprints the performance of the top large companies listed on the NSE. It is calculated using the free-float market capitalization method and its value is calculated in real-time. It was launched in April 1996 but the base date is November 3, 1995, and the base value is 1,000.
It is balanced again semi-annually and the cut-off dates are January 31 and July 31 of each year.
The Nifty 50 serves many purposes, the most essential among which are that it serves as a benchmark for portfolios, index-based derivatives, and index funds. Like the Sensex, it in addition provides a quick measure of market sentiment.
Nifty Bees works
Bees is an ETF that tracks the Nifty 50 index. This means 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 remit of the securities as constitute by the Nifty 50 index” in spite of the fact that no guarantees are provided that it will meet this goal.
Components of Nifty Bees
Investing in Nifty Bees is like investing in a container of shares which are basically the elements of the Nifty 50 index and by that logic, the top constituents of the index (higher) will also be the top-scale components of Nifty Bees. The top components of Nifty Bees by sector are as follows with Banks accounting for the highest share at 25.17%.
Forms in Bees available in India
Nifty Bees, there are several types of Bees or ETFs available in India:
Liquid Bees
Invest in a share containing money market instruments issued by the government. For example- bonds, treasury bills, etc.
Bank Bees
Invest in a bundle of top banks with Bank Nifty as the benchmark index.
Gold Bees
Invest in Gold. It focuses to reproduce the returns of domestic gold at a fraction of the cost.
Bharat Bond
Invests in a share of Public Sector Units (PSUs) owned by the central government.
Points to remember before investing in Nifty Bees
- Track Error
The differentiation between the returns generated by Nifty Bees and the benchmark index. Ideally, there should be minimum track error. The tracking error of Nifty Bees and Nifty based ETFs. Always notice that IDFC Nifty ETF has the maximum track error. So, while Nifty 50’s last one-year return is 64.43%, IDFC Nifty ETF return is 63.01%. Whereas, HDFC Index Nifty 50 ETF has the lowest track error of 0.18 only.
- Expense Ratio
The Nifty Bees have a true advantage over index mutual funds. A low expense ratio has a direct positive impact on your returns. The below table shows the expense ratio and returns of the top 5 index mutual funds against Nippon India ETF Nifty Bees.
Always remember that all Nifty ETFs have underperformed Nifty Bees due to their high expense ratios. IDFC Nifty Index Fund and Nippon India Index Nifty Fund are the worst performers. This is because of their extremely high expense ratios of 0.89% and 1.03% respectively.
Both Nippon India Index Nifty Fund and Nippon India ETF Nifty Bees track the same benchmark. There is still a difference of 2.09% in their returns due to an extremely high expense ratio.
- Liquidity
Bees are majorly high in liquidity. The establishment of nifty-based index funds has buy-in higher liquidity to Nifty Bees. Liquid Bees, Nifty Bees offer superior liquidity.
Conclusion
Nifty Bees tracks the Nifty 50 Index. The full form of Bees is a ‘benchmark exchange-traded scheme’. An ETF is a container of securities, shares that are sold on an exchange market. They merge features and potential interests particularly similar to those of stocks, mutual funds, or bonds. Individual stocks, ETF shares are traded all over the day at prices that vary based on supply and demand. The Nifty 50 index is one of the two most largely used indices for the Indian markets, with the other being the Sensex. there are several types of Bees or ETFs available in India. i.e., Liquid Bees, Bank Bees, Gold Bees, and Bharat Bond.