6 Mins

Introduction

Nifty BeEs is an exchange-traded fund that replicates the S&P CNX Nifty Index. It is the first ETF introduced by the benchmark in 2002 January. It trades on the National Stock Exchange and hence can be bought or sold in dematerialized format only. They offers multiple benefits to its investors, for example, diversification. This article covers in detail Nifty BeEs and their benefits.

What are Nifty BeES in India?

Nifty BeEs is the short form of ‘Benchmark Exchange Traded Scheme’. It is an exchange traded fund that aims to offer returns similar to the S&P CNX Nifty Index. They trade on the National Stock Exchange similar to any other share in rolling settlement. Since it is an ETF, it is a combination of a mutual fund and a share (equity securities).

Each unit of Nifty BeEs is 1/10th of the value of the S&P CNX Nifty Index. The face value is INR 10. And investors can easily transact in them through a demat account. The purchase and sale of the units of this ETF are possible only in dematerialized format. Since it’s an ETF, the buying and selling of the units happen at real-time NAV or market price. Investors can also do a systematic investment in this ETF.

The expenses of Nifty BeEs, including all fees, is 0.80%. If the Asset Under Management (AUM) is over INR 5 billion, then the expenses will be 0.65%. It is the least expense ratio among mutual funds in India. Hence investing in this ETF is very economical. Moreover, the returns from Nifty BeEs are similar to S&P CNX Nifty. Hence there is no fund manager bias.

Nifty BeEs are very liquid as they trade on the capital market. One can also place limit orders for these ETFs. Since Nifty BeEs follows the S&P CNX Nifty Index, the investor is informed about the portfolio at all times. Also, investing in Nifty BeEs ETF offers diversification as the investor can invest in 50 different companies by purchasing just one unit.

What are the benefits of investing in Nifty BeES in India?

Following are the benefits of investing in Nifty BeES in India:

Simple and Economical

Buying and selling of NiftyBeES are as easy as equity securities trading. One can buy and sell through any NSE terminal at the prevailing market prices. The underlying portfolio of Nifty BeES closely replicates the S&P CNX Nifty. The NiftyBeES scheme is a no-load scheme. In other words, the total expenses, including the management fees, is not more than 0.80% of the Daily Average Net Assets. The percentage is among the lowest expense ratio for any mutual fund scheme. Furthermore, the costs are as low as 0.65% for assets over INR 500 crore.

Convenience and Liquidity

The NiftyBeES is listed and trades on the capital market (NSE). Therefore, one can buy it during trading hours in a day. Investors can react to an opportunity quickly and even place limit orders. One can hold their Nifty BeES investments in their DP account along with other portfolio holdings. The nature of Nifty BeES itself attracts liquidity. For example, from investor buying and selling, arbitrage by authorized participants with the underlying shares, and arbitrage with index futures. The trade volume is significant hence offering good liquidity to the investor. 

Neutral and Transparent

There is no fund manager bias for this ETF. In other words, the performance of these funds depends on the S&P CNX Nifty Index and the demand and supply in the market. And not on the fund manager’s research and analysis. Since the Nifty BeES replicates the S&P CNX Nifty, the unit holders can know where and how much is invested in a share at any given time.

Diversification and Equitable Structure

Investing in one unit of the mutual fund gives exposure to fifty shares of S&P CNX Nifty. Therefore, offering a good spread of risk and diversification. Nifty BeES has a unique “in-kind” mechanism of buying and selling by exchanging a pre-defined portfolio. Through this long-term, investors do not bear the cost of short term trading unlike other open ended mutual funds. In other words, it insulates the long-term investors from short-term trading activity.

How to invest in Nifty BeES in India?

One can invest in Nifty BeES through their trading and demat account. Just like purchasing equity securities (stock), one can buy Nifty BeES. Unit holders can buy and sell anytime during the trading day at the prevailing market prices. Furthermore, these transactions attract some brokerage fees similar to that of buying equity securities.

One can invest in Nifty BeES either through the lump sum or systematic investment plan route. For lump sum investing, the investors have to buy the units at real-time price. Lump Sum investing is often preferable when markets are corrected cyclically. While for SIP investing, investors can pick a date and start their monthly instalments. SIP investment provides an opportunity for the investor to make an investment at every level of the market.

Is Nifty BeES a good investment?

Nifty BeEs is an ETF and hence offers diversification to the investors. The mutual fund invests in 50 different companies, and therefore, when investors buy one unit of an ETF, they get instant diversification and hence spreading the risk. Also, investing in Nifty BeEs is very economical as the expenses are limited to 0.8%.

Since it replicates S&P CNX Nifty, the investment portfolio is known to the investors, making it a very transparent form of investment. It trades on the NSE and hence is very convenient to buy and sell, and it is also very liquid. Moreover, Nifty BeEs follows an in-kind mechanism of portfolio creation and redemption. Hence it protects long term investors from trading activity and additional costs of short term investors. Therefore they can be considered as a good investment.

Do Nifty BeES give dividends?

Giving dividends to its investors depends on whether the scheme is having surplus funds available or not. Trustee of the scheme often takes the decision of dividend payouts, dividend amount and frequency. Dividends are paid to the investor after deducting the applicable TDS taxes. Usually, the dividend is paid within 30 days from its date of declaration. However, the fund doesn’t guarantee the dividend amount and the frequency of the dividend payments. Furthermore, once the dividend is paid, the NAV of the scheme shall be reduced by the dividend amount and the dividend distribution tax (DDT) amount.

Dividends are distributed through any of the following ways:

  • Cheque
  • Real-Time Gross Settlement (RTGS)
  • Electronic Clearing System (ECS)