Why is investing in exchange-traded fund or ETF safer than buying shares for the first time investor over a long period?
To understand that, we have to first understand what is an ETF. An exchange traded fund is a basket of quality shares that you can buy or sell through a stockbroker on a stock exchange like NSE or BSE. ETFs are managed by an asset management company. Buying and selling of ETFs is provided to investors on desktop, mobile app with hassle-free service. It is transparent, portfolio prices are live; it is similar to buying a share. There are a number of services nowadays through a stockbroker for investing in ETFs.
So many ETFs are available in Indian Stock market like Reliance Nifty Bees, Motilal Oswal NASDAQ 100 ETF, Reliance ETF Gold BeES, Reliance ETF Bank BeES, UTI Sensex Exchange Traded Fund, Motilal Oswal Midcap 100 ETF and so on.
Here let’s discuss Nifty BeES, it’s India’s first ETF launched by Benchmark Asset Management Company on January 8, 2002. ETF Reliance Nifty BeES can be bought or sold like any other share on the exchange through brokers but requires a Demat Account with a SEBI registered stockbroker.
Nifty BeEs is one of the ETF, a basket of Nifty 50 Index shares. As it is merely a replica of Nifty with one single decision, buying the basket of Nifty 50 Shares, Nifty Bees represents 1/10th of Nifty Index value, means buying one unit of Nifty Bees is equal to investing money in NIFTY INDEX. A nifty index is a basket of quality stocks like Tata Consultation Services, Reliance Industries, HDFC Bank, Hindustan Unilever, L&T, Infosys, SBI, Asain Paints, Maruti, Wipro, etc.
ETFs became popular due to basket of shares, as it creates well diversification of stocks, flexibility, and liquidity. Its price is calculated just like a mutual fund. ETFs have a net asset value (NAV), which fluctuates throughout the day on demand and supply basis, as ETFs trade on the live screen, so buying or selling an ETF involves brokerage.
Historically the returns of Nifty beES, from 2002-2019 graph shows us the overall volatility and growth since the inception.
For more understanding Past performance of ETF -NIFTY BeES Fund Performance since launch of fund as below:
Launch Year & Current Year 2002 2019
Reliance ETF NIFTY BEES(Price NAV PER UNIT-INR RS) 107.5 1138
Example Investment from 2002-2019 Rs 1 lakh Rs 10.59 lakh
Past Returns Percentage 958%
No. of Years 17 (Yrs)
As per above graph it clearly shows the overall growth of Reliance ETF Nifty BeES from the Year 2002-2019. However, returns are without dividend income, most recent dividends per unit Rs 7.99, 6.99, 7.49 (Years -2015, 2014, 2013)
In ETF’s there is always short term volatility such volatility becomes a buying opportunity for investors and needs to hold over a long period. In Nifty 50 companies, there are sector wise weightage like financial services, auto ancillaries, agrochemicals, telecom, pharma, shipping, metal, media, engineering, consumer goods, cement and IT. It entirely clear Nifty 50 Stocks is similar to the nifty 50 Index, so nifty BEES is based on the performance of nifty 50 stocks. India is a growing economy, over a long period; it’s advisable to hold quality with volume based ETF like Nifty Bees.
However, there are a lot of ETFs available in India investors can buy ETF as per his/her requirement like want to invest in the American market then ETF Motilal MOSt Oswal NASDAQ 100 is suitable. Similarly, for buying a basket of Quality Midcap Investment needs in ETF M100, even in Gold then Gold Bees is recommended.
In today’s world by using Digital technology some full-service stock brokers provide ETF SIP, auto- systematic investment so that investors can buy any stock or ETF, weekly, monthly so systematic investment creates a discipline in financial products.
ETF is an innovative product. It is suitable for long term investors, one should make a portfolio at least 10-15 percent of his total net worth. Historically ETF has been constant good performer instead of Fixed Deposits, Recurring Deposits only with the vision of long term and investors should avail a buying opportunity of every Dip and Investors can sell ETFs on market price any time whenever he/she want there is no lock-in period or any surrender charges what so ever, just paying a pure brokerage which is very nominal.