What is Nifty BeES?

Understanding Nifty BeES Meaning

Exchange-traded fund (ETF) in India, Nifty BeES (Benchmark Exchange Traded Scheme), aims to offer investment returns that closely resemble the total returns of assets as reflected by the S&P CNX Nifty Index. On the capital market section of the NSE (National Stock Exchange), shares and mutual fund units are combined to form Nifty BeES. The S&P CNX NIFTY index is worth 1/10th of each Nifty BeES unit.

Diversification, index tracking and minimal cost are the advantages offered by NIFTY BeES. Nifty BeES can be purchased and sold like shares at prices on the screen using any NSE terminal. The Nifty BeES basic portfolio is very close to the S&P CNX Nifty. Therefore, Nifty BeES follows the S&P CNX Nifty's movement.

The Nifty BeES is not a load scheme. The annual expense ratio, which includes management charges, is one of the smallest for any mutual fund scheme in India at 0.80% of daily average net assets. For assets of more than 5 billion rupees, the cost is further reduced to 0.65%.

Features of Nifty BeES

Nifty BeES has the following characteristics:

1. The first exchange-traded fund in India, Nifty BeES, was introduced on December 28, 2001. The Nippon India Mutual Fund is currently responsible for managing Nifty BeES.

2. Nifty BeES units equal 1/100th of the value of the Nifty 50 Index and 1/10th of the S&P CNX Nifty index, respectively.

3. NAV data is calculated in real-time as traded on the Nse. Buying and selling of Nifty BeES units are in a dematerialised form. Consequently, investors can purchase and sell units on the stock exchange anytime. In addition, there is also an option to make trades at the same time.

4. The minimum investment is INR 50,000.

How Does Nifty BeES Work?

Nifty BeES is an Exchange-Traded Fund tracking the Nifty 50 Index. It invests in the securities represented by the Nifty 50 index, trying to generate an investment return before costs that would be very close to the actual returns of those securities as measured by the Nifty 50 index. To achieve this, it follows a passive investment approach, investing in the constituent stocks of the Nifty 50 index in the same proportion, except for a very small percentage set aside for liquidity.

How Is Nifty BeES Different from Nifty 50?

Nifty BeES is an ETF that invests in securities representing Nifty 50, while Nifty 50 is the benchmark index itself. Nifty BeES attempts to closely mirror the index composition and returns by investing in the 50 companies that comprise Nifty 50. As an ETF, Nifty BeES trades on the stock exchange so investors can buy or sell during market hours at prevailing prices. Meanwhile, Nifty 50 is just an index that rinvestors cannot directly invest in. Nifty BeES provides a simple way for investors to gain diversified exposure to the large cap segment by purchasing the ETF units tracking India's leading blue-chip index.

How to Invest in Nifty BeES?

For a brokerage charge, Nifty BeES can be purchased and sold through a trading and demat account, just like stocks. It is listed on the National Stock Exchange and the Bombay Stock Exchange. Unlike mutual funds that can only be traded at the end of a day, it gives itself symbols and codes for trading and an opportunity to conduct transactions anytime throughout its trading day through market prices set by demand and supply.

An investor can buy as little as one unit of Nifty BeES at a time and even place a limit order to buy at or below the specified price or sell at or above the specified price. These securities may be stored in demat form as ordinary stock when acquired. Here, they can find the most recent market information about Nifty BeES. Nifty BeES liquidity advantage enables its investors to buy and sell it readily throughout the day.

Large investors and authorised participants can participate in creation units, the least expensive units that can be bought or redeemed directly from the AMC.

Advantages of Nifty BeES

The benefits of the Nifty BeES are mentioned below.

1. Ease of trading During market hours, investors can trade the fund in real-time. Investors can trade by submitting to their broker the details of a transaction they wish to execute via telephone or by making orders available on their trading account. To minimise losses, investors can also benefit from placing limit orders.

2. Higher liquidity This fund gives investors high liquidity because it can trade like any individual stock. Investors can obtain liquidity through many sources, such as arbitrage through index futures and authorised participants with the underlying shares.

3. Simplicity of fund The fund is easy for investors to invest in and trade through a Demat account and a trading account, like any typical ETF fund. The Fund tracks its underlying index to match its performance with the fewest possible tracking errors.

4. Transparency Over other investment types, Nifty BeES can provide a significant level of transparency. At any time, investors can obtain information on the exact position or precise investments in each of the Fund's securities.

5. Low costs ETFs generally have lower cost ratios than other investment products, such as mutual funds. This fund has no exit load, as has been the case for several mutual funds.

Limitations of Nifty BeES

• As a passive index fund, Nifty BeES does not aim to outperform the Nifty 50 benchmark, only match its performance. It lacks active management to take advantage of market changes.

• Being market-cap weighted, Nifty BeES tends to have high exposure to expensive large cap stocks. It does not take valuation into account.

• Trading as an ETF on exchange means dealing with bid-ask spreads and brokerage costs, which detract from returns.

• Tracking error can arise due to fund fees/expenses causing Nifty BeES returns to slightly lag the actual Nifty 50 performance.

• Investors cannot customise or exclude any constituents from the index when buying the ETF.

• Nifty BeES trades with lower volumes than bluechip stocks, so selling large quantities may be challenging.

• Because of no exposure to mid/small caps and sectors other than the 50 largest companies, it misses out on higher growth potential.

Taxation of Nifty BeES

Nifty BeES is taxed similarly to equity funds in India. The taxation is based on the holding period of the investment.

• Short-Term Capital Gains (STCG): If Nifty BeES units are held for less than one year, the gains are subject to a short-term capital gains tax of 20%.

• Long-Term Capital Gains (LTCG): For units held for more than one year, the long-term capital gains are taxed at 12.5% on gains exceeding ₹1.25 lakh without indexation benefits.

These tax rates align with those applied to equity investments, reflecting Nifty BeES's classification as an equity-oriented ETF.

Conclusion

The Nifty BeES is an exchange-traded fund offering diversification for investors. Mutual funds invest in fifty companies, so when investors buy a single ETF unit, they are automatically diversified, thus spreading risk. This investment portfolio is known to the investors as it replicates S&P CNX Nifty, making it a very easily accessible form of investing. It is easily bought and sold, since it's traded on the National Stock Exchange. It is thus to protect long-term investors from the effects of trade activity and additional costs for short-term investors. Thus, NSE Nifty BeES can be regarded as a good investment. Moreover, check out the Kotak Securities app for any kind of investment.

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