Everything About Nifty BeEs - Performance Vs Active Mutual Funds (2024)

Nifty BeEs stands for Nifty Benchmark Exchange Traded Scheme. It is an exchange traded fund (ETF) with Nifty 50 as the benchmark index. The main aim of an ETF is to match the returns generated by its benchmark. Similarly, the main aim of Nifty BeEs is to mirror the returns of India’s favourite index – Nifty 50.Nifty BeEs is an acronym for Nippon India ETF Nifty BeEs. It is the first ever ETF in India. It was launched on 28th December 2001. It is an exact replica of Nifty… same stocks with the exact same weightage. Nifty BeEs are exclusively traded on the National Stock Exchange (NSE).Prior to its launch, trading in Nifty was not popular among retail investors. The only way to trade in Nifty was via. This required high capital for margins and contracts were settled every month. Investing in Nifty for the long-term was not possible.This is where Nifty BeEs changed the game. It allowed investors to invest in all fifty Nifty companies as a single unit. Investors could now hold Nifty for perpetuity. The best part about Nifty BeEs is that it is inexpensive.Nifty BeEs is the cheapest and simplest way for investors to grow their wealth. As Nifty BeEs completes 19 years in Indian markets, let us take a detailed look at its meaning and performance.

In this article:

  1. What are Nifty BeEs?
  2. What is the Composition of Nifty BeEs?
  3. What is the Use of Nifty BeEs?
  4. What are the features / advantages of Nifty BeEs?
  5. Three Things to Keep in Mind while Investing in Nifty BeEs
  6. Performance of Nifty BeEs since Inception
  7. Nifty BeEs Vs Actively Managed Mutual Funds
  8. FAQs on Nifty BeEs

What are Nifty BeEs?

Nifty BeEs is a collection of the fifty biggest stocks in India. When you buy one unit of Nifty BeEs, you are investing in fifty stocks.Nifty BeEs is nothing but a derivative of Nifty. This means that it does not have any value of its own. Its value is dependent on the value of Nifty. If Nifty falls, Nifty BeEs will also fall and vice-a-versa.This is similar to you ordering a Thali in a restaurant. You get a variety of dishes. The combined cost of these dishes is lower than the price of individual items. So, you get the same taste but at a fraction of the cost. Nifty BeEs also gives you exposure to fifty different stocks at a fraction of the cost.Nifty BeEs is a combination of stocks and mutual funds. Like a mutual fund, it collects money from various investors. This collected money is then used to buy fifty stocks of Nifty. Like shares, Nifty BeEs can be sold on a stock exchange during trading hours.The face value of Nifty BeEs is Re 1. Its market value is approximately 1/10th the value of Nifty. For example: The value of Nifty on 4th June 2021 is 15,670. The value of Nifty BeEs on the same date is Rs 168.59 (approximately 1/10th).

Sector-Wise Composition of Nifty BeEs

Everything About Nifty BeEs - Performance Vs Active Mutual Funds (1)

Nifty BeEs is mostly dominated by banks with an exposure of 26.12%. Information and Technology (IT) sector has an exposure of 16.51% in Nifty BeEs.The Top 10 holdings of Nifty BeEs are:

Everything About Nifty BeEs - Performance Vs Active Mutual Funds (2)

What is the Use of Nifty BeEs?

You must be thinking…but why should investors invest in Nifty BeEs? Why not buy individual stocks?Two reasons…Cheaper and Simpler.To buy one share each of Nifty 50 stocks, you will have to pay Rs 1,39,065 (as on 4th June 2021). But you can invest in the same 50 stocks via Nifty BeEs in just Rs 168.59. This makes Nifty BeEs pocket friendly for retail investors.Investing in Nifty BeEs is simpler than investing in fifty individual stocks. Normally, post investment you have to constantly monitor and rebalance your portfolio to match Nifty’s allocations. This leads to high brokerage costs and taxes. But any changes in Nifty is automatically reflected in Nifty BeEs. Investors do not have to spend their time or pay taxes in rebalancing their portfolios.Like Nifty BeEs, there are various types of BeEs or ETFs available in India:· Liquid BeEs Invests in a basket containing money market instruments issued by the government. For example: bonds, treasury bills etc.· Bank BeEs invests in a collection of top banks with Bank Nifty as the benchmark index.· Gold BeEs invests in Gold. It aims to replicate the returns of domestic gold at a fraction of the cost.· Bharat Bond ETF invests in a basket of Public Sector Units (PSUs) owned by the central government.The reason for the popularity of Nifty BeEs is its low expense ratio. The expense ratio of Nippon India ETF Gold BeEs is 0.82%. Whereas the expense ratio of Nifty BeEs is only 0.05%. A low expense ratio directly increases your returns.

Why is Nifty as a Benchmark Popular? Why not Sensex?

Sensex is the oldest index in India. But Nifty is the most traded. It has a deep futures and options (F&O) segment. In fact, Nifty 50 stocks contribute to 67% of the entire NSE’s trading volume. This makes Nifty 50 an opportunity rich index. It is broader than the 30 stocks tracked by Sensex.Even performance wise, Nifty 50 index has outperformed all other benchmark indices.

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As you can see, Nifty 50 Total Return Index (TRI) has outperformed the other indices in short-term and long-term.

What are the Features of Nifty BeEs?

1. High Liquidity: Nifty BeEs are highly liquid as they are traded on NSE. NSE has a huge F&O segment which attracts foreign institutional investors (FII) and big traders. This creates ample liquidity for retail investors to enter or exit their positions smoothly.2. Real-Time Price Discovery: Unlike mutual funds, you can buy and sell Nifty BeEs throughout the trading hours. In mutual funds, every investor is allotted units as per the closing net asset value (NAV). So, all investors get units at the same price. There is no partiality or scope for active trading.But in case of Nifty BeEs, investors can trade in the stock market like stocks. They can buy when markets are down and sell once markets bounce back. This is why Nifty BeEs are popular among traders.3. Dematerialised Form: You can trade in Nifty BeEs only if you have a Demat and trading account. The settlement takes place in T+2 days like stocks. The settlement takes place on an exchange which reduces the counterparty risk.4. Pocket friendly: Nifty BeEs gives you the opportunity to invest in fifty of the top stocks in India with a small sum of Rs 500. You can invest via both lumpsum and systematic investment plan (SIP) in Nifty BeEs.5. Diversification: When you invest in Nifty BeEs, you get a share of all fifty companies spread across 22 sectors. These include Banking, Pharmaceuticals, Infrastructure etc. So, you do not miss out on any sector-specific opportunity.6. No Fund Manager Bias: Nifty BeEs is a passively managed ETF. The fund manager does not aim to beat Nifty’s returns. His only job is to mirror the index. This reduces human error or bias. Because of this passive management, the expense ratio of Nifty BeEs is extremely low. This results in higher returns for investors.The below table shows the performance of Nifty BeEs against other mutual fund categories:

Everything About Nifty BeEs - Performance Vs Active Mutual Funds (4)

As evident in the above table, Nifty BeEs has generated almost similar returns as Nifty 50 TRI, Large-cap funds and ETFs. However, they have underperformed midcap and small cap mutual funds.7. Transparency: Investors are mostly unaware of where the fund manager is investing their hard-earned money. But in Nifty BeEs, the fund manager does not deviate from Nifty’s portfolio allocation. This way investors are aware of where their money is invested.8. Low Expense Ratio: This is the biggest advantage of Nifty BeEs over index mutual funds. Expense ratio is the cost charged by the fund house to manage your money. It is deducted from a fund’s NAV. So naturally, higher the expense ratio, lower the scheme’s NAV and returns will be.For example: Tata Index Fund – Nifty Plan tracks Nifty 50. Its expense ratio is 0.51%. On the other hand, the expense ratio of Nippon India ETF Nifty BeEs is 0.05%. That’s a difference of 0.46%. This seems small but can cause a big compounding difference over 20 to 30 years.9. No Exit Loads: Nifty BeEs do not have exit loads. You can redeem them within minutes. This option is not available in index funds. You cannot invest in an index fund at 11 am and redeem at 11.30 am on the same day. But this is possible in the case of Nifty BeEs. However, you will have to pay short term capital gains tax on your gains.10. No Worry About Expiry: In case of Nifty F&O, you need to compulsorily settle your contract on expiry whether you are in profit or loss. You cannot hold a Nifty F&O contract for perpetuity. This led to huge losses for investors who were forced to settle on expiry. But in case of Nifty BeEs, investors are long-term owners of Nifty. They do not have to worry about expiry or settle contracts in losses.

Three Things to Keep in Mind While Investing in Nifty BeEs

  1. Tracking Error: This is the difference between the returns generated by Nifty BeEs and the benchmark index. Ideally, there should be minimum tracking error. Let us look at the tracking error of Nifty BeEs and Nifty based ETFs.
Everything About Nifty BeEs - Performance Vs Active Mutual Funds (5)

Notice that IDFC Nifty ETF has the maximum tracking 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 tracking error of 0.18 only.

  1. Expense Ratio: This is where 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 top 5 index mutual funds against Nippon India ETF Nifty BeEs.
Everything About Nifty BeEs - Performance Vs Active Mutual Funds (6)

Notice 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. But there is still a difference of 2.09% in their returns due to an extremely high expense ratio.

  1. Liquidity: Fortunately for investors, Nifty BeEs is highly liquid. The introduction of nifty based index funds has brought in higher liquidity to Nifty BeEs. Compared to Liquid BeEs, Nifty BeEs offer superior liquidity. But it still has a long way to go to match the liquidity of Gold BeEs.
Everything About Nifty BeEs - Performance Vs Active Mutual Funds (7)

Performance of Nifty BeEs Since Inception

Everything About Nifty BeEs - Performance Vs Active Mutual Funds (8)

Since its launch in January 2002, Nifty BeEs has generated a compounded annual growth rate (CAGR) of 15.87%. The value of Rs 1 Lakh invested in the above benchmarks would have generated the following returns:

Instrument1-Year3-Years5-YearsSince Inception
Nifty BeEs1,49,7301,40,8601,96,90017,30,070
Nifty 50 TRI1,49,8901,41,3501,98,69018,53,410
S&P BSE Sensex TRI1,46,2601,43,7702,02,60020,49,730

CAGR of Nifty BeEs Vs Nifty 50 TRI and S&P BSE Sensex TRI

Instrument1 Year CAGR3 Years CAGR5 Years CAGRSince Inception
Nifty BeEs49.73%12.09%14.49%15.87%
Nifty 50 TRI49.89%12.22%14.70%16.29%
S&P BSE Sensex TRI46.26%12.85%15.15%16.89%

While profitable, Nifty BeEs is a passive investment strategy. It is suitable for conservative investors. For investors looking to create real wealth, Nifty BeEs are underwhelming.For such investors, Samco has launched a unique trading and investment product – KYATRADE. This revolutionary app gives you real time trading and investment ideas at a swipe. These ideas come with pre-decided target and stop-loss. So, investors don’t have to bother about managing their risks while growing their wealth.So, join KyaTrade for just Re 1 and start creating wealth with a simple swipe.

FAQs on Nifty BeEs

1. What are Nifty BeEs?Nifty BeEs is a basket containing 50 stocks of Nifty 50 Index. It is India’s first exchange traded fund. It was launched by Nippon India Mutual Fund in January 2002. It is also known as Nippon India ETF Nifty BeEs. It is one of the cheapest investment options with an expense ratio of 0.05%. Nifty BeEs has generated a CAGR of 15.87% since its inception.2. Is Nifty BeEs Safe?Nifty BeEs is a carbon copy of Nifty. Since it is linked to the stock market, Nifty BeEs are not as safe as a bank FD or even a debt fund. But it is safer than midcap or small cap stocks as it invests in top 50 large-cap companies in India.3. Which Nifty ETF is best for investment?Nippon India ETF Nifty BeEs is the best nifty based ETF for investment. However, investors can also opt for Nifty based mutual funds with low expense ratio and minimum tracking error.4. Does Nifty BeEs give Dividend?No. Nifty BeEs hasn’t given dividends since 2015.5. How are Nifty BeEs taxed?Nifty BeEs follow equity taxation.

  • If you sell Nifty BeEs before 12 months, a flat short term capital gains tax of 15% is applicable.
  • If you sell Nifty BeEs after 12 months, a 10% long term capital gains tax is applicable if gains exceed Rs 1 Lakh in a financial year.

6. Which companies are in Nifty BeEs?Reliance Industries has the highest weightage of 10.18% in Nifty BeEs. The following are the top 10 companies in Nifty BeEs:

CompaniesWeightage
Reliance Industries10.18%
HDFC Bank Ltd9.71%
Infosys Ltd7.92%
HDFC Ltd6.88%
ICICI Bank Ltd6.56%
TCS Ltd4.96%
Kotak Mahindra Bank Ltd4.05%
Hindustan Unilever Ltd3.32%
Axis Bank Ltd2.83%
ITC Ltd2.79%

7. Can I sell Nifty BeEs anytime?Yes, like shares you can sell Nifty BeEs anytime during market hours. They follow a T+2 days settlement cycle.8. Can you short sell Nifty BeEs?No. You cannot short sell Nifty BeEs without holding them in your Demat account. You can short sell Nifty using futures and options instruments.

Tagged: Nifty BeEsNifty BeEs etfNifty BeEs priceNifty BeEs returnsNifty BeEs vs Active Mutual Funds

As an enthusiast and expert in finance and investment, particularly in exchange-traded funds (ETFs) and index tracking, I'm excited to delve into the details of Nifty BeEs, or Nifty Benchmark Exchange Traded Scheme. My experience includes in-depth research, analysis, and practical application of various investment instruments, including ETFs, which has given me a comprehensive understanding of their mechanics, advantages, and performance metrics.

Let's break down the key concepts and information from the provided article:

Nifty BeEs Overview:

  • Nifty BeEs stands for Nifty Benchmark Exchange Traded Scheme, an ETF tracking India's Nifty 50 index.
  • Launched on 28th December 2001, it was the first ETF in India.
  • It mirrors the returns of Nifty 50, offering investors exposure to all fifty Nifty companies with the same weightage.
  • It's exclusively traded on the National Stock Exchange (NSE).

Composition and Sector Allocation:

  • Nifty BeEs comprises the fifty biggest stocks in India, dominated by sectors like banks (26.12%) and information technology (16.51%).
  • The top ten holdings include companies like Reliance Industries, HDFC Bank, Infosys, etc.

Use and Advantages:

  • Nifty BeEs offers a cost-effective and simple way to invest in Nifty 50, providing exposure to fifty stocks at a fraction of the cost.
  • It eliminates the need for individual stock selection and portfolio rebalancing, making it suitable for long-term investment.
  • Nifty BeEs are part of a broader category of ETFs in India, including Liquid BeEs, Bank BeEs, Gold BeEs, and Bharat Bond ETF.

Performance and Comparison:

  • Nifty BeEs boasts a low expense ratio of 0.05%, enhancing investor returns.
  • Nifty 50's popularity is attributed to its deep F&O segment, high trading volume, and outperformance compared to other benchmark indices like Sensex.

Features and Benefits:

  • Nifty BeEs offer high liquidity, real-time price discovery, and trade in dematerialized form.
  • It enables diversification across sectors without fund manager bias, resulting in transparency and low expense ratios.
  • There are no exit loads, expiry concerns, or mandatory settlements, providing flexibility to investors.

Considerations and Performance Metrics:

  • Investors should monitor tracking error, expense ratios, and liquidity when investing in Nifty BeEs.
  • Performance-wise, Nifty BeEs have shown consistent returns, although they are passive investments suitable for conservative investors.

FAQs:

  • Frequently asked questions cover topics like safety, dividends, taxation, composition, liquidity, and selling options of Nifty BeEs.

Overall, Nifty BeEs offer a cost-effective, diversified, and transparent investment option for retail investors seeking exposure to India's top fifty stocks. Its simplicity, low expense ratio, and liquidity make it a compelling choice in the ETF landscape.

Everything About Nifty BeEs - Performance Vs Active Mutual Funds (2024)

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