Nifty BeES (Benchmark Exchange Traded Scheme) is the first exchange-traded fund (ETF) in India that seeks to provide investment returns that closely correspond to the total returns of securities as represented by the NSE's Nifty Index. Before investing in this product, it is important to know what exactly is it, it's advantages and it's disadvantages.
What is Nifty BeEs?
It is important to realize that the reality of most Nifty mutual funds is that they are overcomplicated, risky, and will cost you a fee regardless of whether the mutual fund makes a profit, beats the market, or makes a loss. Ideally, the goal of an index mutual fund is to ensure that it can at least provide a return higher than the index itself throughout a certain period, usually a financial year. Apart from this uncertainty, an investor cannot enter or exit a mutual fund as per his convenience and timing. Mutual funds cannot be traded on an exchange and can only be traded once a day after market close.
To counter these disadvantages, Nifty BeEs, the first ETF in India was introduced by an asset management firm called BENCHMARK on January 8, 2002. 'BeEs' stands for 'Benchmark Exchange Traded Scheme' and is meant to ensure that not only can long-term investors be directly invested in the Nifty index, but also the traders can trade the changing value of the index on a small time frame.
Other advantages of Nifty BeEs?
The major advantages of Nifty BeEs over a Nifty-based mutual fund are its simplicity and convenience. Other benefits include:
- neutrality - as the Nifty BeEs directly replicates the Nifty index, your investment is not under the risk of any Fund manager bias.
- transparency - every Nifty BeEs investor is aware of which company they are invested in and how much of their investment is covered under their BeEs investment as it is proportional to the Nifty weightage.
- instant diversification - investing in just one unit of the Nifty BeEs gives an investor exposure to all fifty shares of the Nifty, which allows investors to diversify risk with one single decision.
- liquidity - an investor can always buy or sell many Nifty BeEs like a stock itself during market hours, making it much more liquid and easier to trade than a mutual fund.
Pledging of Nifty BeEs units
Like most stocks and ETFs like Liquid BeEs, investors can pledge units of Nifty BeEs as collateral to their broker in return for additional margin in their trading account, which can be used to take other trades that require having a margin amount. Margin in place of Nifty BeEs will be provided by your broker after a 10% haircut i.e. Rs 90,000 will be added as collateral margin to your trading account if you pledge Rs 1,00,000 of Nifty BeEs units.
Read more on pledging shares as collateral for additional margin
picture credits : 5paisa
Disadvantages of Nifty BeEs?
The only disadvantage of Nifty BeEs is that an investor is required to provide full margin at the time of placing orders as opposed to Nifty futures. Also, the liquidity in Nifty BeEs can be lower than Nifty futures. However, these factors should not affect a long-term investor looking to invest their money into India's top 50 companies for years to come.
The Nifty BeEs is a useful investment vehicle that can not only provide higher returns than most mutual funds can but also keep up with the market itself. Added to good investments, diversification, and hedging in an investor's portfolio, a systematic investment plan(SIP) into Nifty BeEs provides a stable instrument for consistently providing returns year on year.
header image credits : DreamGains