The exchange traded fund (ETF) was launched on December 2001. Since inception, the fund has given 15.83 percent returns, compounded annually
While volatile markets paint portfolios red, they also offer opportunities. Savvy investors make the most of the situation by accumulating stocks on bad days. The trading in units of Nippon India ETF Nifty BeES (Nifty BeES) hitting the Rs 205-crore mark in value terms is a case in point. Investors lapped up the units when markets were weak. The exchange traded fund (ETF) was launched on December 28, 2001.
The ETF tracks the bellwether Nifty 50 Index and is one of the recommended schemes of MC30 – a chosen list of schemes for savvy investors. The scheme manages assets worth Rs 5,113 crore and charges 5 basis points towards expenses. Since inception, the fund has given 15.83 percent returns, compounded annually.
Warming up to ETFs
On December 20, trading volumes in Nifty BeES spiked and 88,117 trades took place compared to 42,743 a day before. The ETF saw increased activity on November 26 – the day the Omicron variant’s news hit the market. On that day, 76,774 trades accounted for a turnover of Rs 112 crore in value terms.
Hemen Bhatia, Deputy Head-ETF at Nippon Life India Asset Management, says, “Investors have realized the utility an index ETF offers. They buy a basket of stocks via a low-cost passive fund such as Nippon India ETF Nifty BeES that gives exposure to almost 60 percent of the market capitalisation of all stocks listed on the NSE.” He points out that investors are comfortable buying a basket over an individual stock, as they don’t know which individual stocks would perform in future.
Large institutional investors can approach the fund house and create units in ETF if the investment amount is above a certain threshold. However, for most individual investors, including high networth individuals, it makes sense to transact on the stock exchange given the relatively low size of their trades.
“Increased transactions in Nifty BEES may be attributed to multiple factors that may include retail participation as well as high networth individuals who use these units for executing more complex trading and investment strategies,” says Vikas Gupta, founder and Chief Investment Strategist, Omniscience Capital.
A window of opportunity
Some high networth individuals use units of index ETFs as a core component of their portfolios. “When markets turn volatile, many investors dump small and mid-cap stocks where they have made money and buy units of diversified index ETFs to retain asset class exposure. We have also seen many traders using units of Nifty BeES as margin while trading in complex strategies using derivatives,” says a fund manager with a portfolio management service provider, on the condition of anonymity.
‘Buying the dip’ is the buzzword for many. A few buy stocks they like, whereas others buy such diversified indices. Harshvardhan Roongta, Principal Financial Planner, Roongta Securities says, “An ETF offers investors the opportunity to benefit from intra-day volatility in stocks. One can take advantage of lower NAV and lower price at a given moment of time when he buys into units of an ETF on the stock exchange, which may not be available by the end of the day if the market recovers from lows. Index funds allot units at the closing NAV of the scheme.”
On December 20, the Nifty opened at 16,824 and hit an intra-day low of 16,410, before it recovered and closed at 16,613. For a lucky few, buying ETF units would have paid off.
Investors, however, should not construe this ‘buying on dips’ as a sure prescription to investment success.
‘Buy on dips’ work only for long-term investors. But be selective about what you are buying. The Nifty ETF is a diversified index offering exposure to large-cap stocks and fit into equity portfolios of most investors. “More aggressive investors can accumulate a mid-cap index ETF or an international index ETF as well if they intend to hold for the long term,” says Gupta. He further points out that buying on dips can be a good supplement for the regular investments done through systematic investment plan in equity mutual funds for long term investors.
Buying on dips can be disastrous if one has a very short term view on the stocks and the stocks or mutual funds continue to slide further with the broad market.
You can keep placing orders for buying units of ETFs at regular intervals. “Investors should choose those ETFs which record good volumes, assuring adequate liquidity and low impact cost,” says Bhatia.
For other recommendations of MC30, click here.