What is Nifty BeES?
Nifty BeES stands for ‘Benchmark Exchange Traded Scheme’.
It is an Exchange Traded Fund that tracks the S&P CNX Nifty index to replicate its returns. Like other ETFs, Nifty BeES is listed and traded on the stock exchange.
How does the Nifty BeES work?
The Nifty BeES was launched in the yr 1992 as the first ETF in India. The ETF is listed on the NSE (National Stock Exchange), from where one can buy and sell it in a dematerialized format.
Each unit of the Nifty BeES fund is equal to 1/10th of the S&P CNX Nifty Index or commonly called Nifty 50 (an index that tracks top 50 companies from across sectors). The face value of each unit is Rs.10 but, depending on the trading volume and demand and supply, the per-unit market price fluctuates.
Benefits of Nifty BeES
Since Nifty BeES combines the features of mutual funds and stocks, it offers a multitude of benefits to investors. These benefits are as follows:
Like other index funds, Nifty BeES tracks and invests in the stock market across 22 sectors. This builds up a diversified portfolio which helps in risk mitigation.
There is no lock-in period or maturity tenure under Nifty BeES. You can exit from the scheme and redeem your investment at your discretion. No exit load is applicable on redemption, and you can sell off your units in real-time on the stock exchange.
Nifty BeES is a very economical investment avenue. While it gives you a diversified portfolio like mutual funds, the expenses involved are meagre.
Ease of buying
Since Nifty BeES is listed on the stock exchange, it is available to all investors. With a Demat account, one can purchase the scheme in real-time. The minimum investment is Rs.500. There is no maximum limit to the investment which makes Nifty BeES suitable for small and large investors alike.
Nifty BeES imitates the Nifty 50 index. There is no prejudice or bias exercised by the fund manager when allocating the portfolio. The portfolio allocation also matches the benchmark index, making the scheme completely transparent for investors.
The stock market is interlinked to the economy. Hence, economic inflation is considered in the movement of the stock market. As such, the returns that one gets from Nifty BeES is inflation-adjusted and relevant for long-term needs.
Things to remember when investing in Nifty BeES
It is important to note that Nifty BeES is not the same as Nifty/Index funds. While Nifty BeES exhibit the features of an ETF, index funds clone mutual funds. Also, Nifty BeES can easily be liquidated in contrast to an index fund. Another fundamental difference between the two is that Nifty BeES are better preferred for trading while index funds are used to build long-term portfolios.
But given the aforementioned benefits, one might be tempted to invest in Nifty BeES. However, here are a few things that one should keep in mind before investing:
- Nifty BeES is an equity-oriented scheme. As such, it is exposed to volatility risks. You should have the appetite to bear the risk if you invest in the scheme.
- Though the scheme tracks the S&P CNX Nifty Index, the returns might not match due to the possibility of a tracking error.
Is Nifty BeES right for you?
If you want to invest in the Nifty 50 index and want a diversified portfolio, Nifty BeES can be an ideal solution. It offers a low-cost investment opportunity with added liquidity, in turn, helping you earn attractive returns. If you have a long-term horizon, the risks would be mitigated, and you can enjoy capital appreciation along.
The bottom line
Nifty BeES is an ideal choice for investors looking to test equity markets while negating their risk. While returns on this investment can be attractive, the risks associated could be high too.
Assess your investment needs before you make investment decisions. Understand your financial goals, and then invest accordingly.
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