Nippon India ETF Nifty 50 BeES (Nifty BeES), India's first-ever ETF scheme, has achieved a milestone of Rs 10,000 crore of Assets Under Management (AUM) recently. Nifty BeES is the third largest Nifty 50 ETF in India followed by SBI Nifty 50 ETF and UTI Nifty 50 ETF. While SBI Nifty 50 ETF and UTI Nifty 50 ETF grew their asset base mainly due to the inflow from EPFO, Nifty BeES gained its assets from the retail and high netwoth individual (HNI) investors. It is also a part of the MC30; Moneycontrol’s curated basket of 30 investment worthy mutual fund schemes. Nifty BeES tracks the Nifty 50 index (N50). N50 is a well-diversified 50-stock index and represents important sectors of the economy. According to NSE India, N50 covers 13 sectors and represents about 66.8 percent of the free float market capitalisation of the stocks listed on NSE as on March 29, 2019.
Nifty BeES was launched by Benchmark AMC in December 2001. “When it was launched, it was looked at, as an alien. Nobody wanted returns that mimicked an index. People wanted funds to outperform markets. Popularising ETFs was a huge challenge. But from that time till now, Nifty 50 BeES has grown; in terms of volume, assets, number of investors. From just Rs 2 crore in 2002 and Rs 408 crore in March 2010, Nifty BeES has now grown to Rs 10,000 crore mark in October 2022”.
Indian ETF market has been dominated by the institutional investors. As per the AMFI’s latest data, About 91 percent of the AUM of overall ETFs (other than gold) came from the institutional investors. Retail and HNI comprised the share of only 1.8% and 6.5% respectively. But Nifty BeES is different. It attracted individual investors. According the Nippon India AMC, out of the average AUM of Nifty BeES, retail and HNI held the share of 13% and 45% respectively. Post the pandemic, many first time retail investors who wanted to taste the equity market preferred the Nifty BeES, according to market experts.
One of the other reasons why passively-managed funds became popular in India is that increasingly large-cap actively-managed funds found it together to beat market indices, such as Nifty 50 and Nifty 100 index (N100). Especially so, after the capital market regulator Securities and Exchange Board of India (SEBI) recategorised mutual funds, made market capitalisation criteria and mutual fund categories, standardized. Benchmarking to total return index (TRI) and rationalization of expense ratios- another SEBI initiative- made things tougher. Investors started preferring the passive funds that track N50 such as Nifty BeES as they deliver market return with lower expense ratio.
Over the long run, the Nifty 50 index has delivered notable returns. Performance as measured by 10-year rolling returns calculated over the last 20 years shows that Nifty 50 Total Returns Index delivered a compound annual growth of 13 percent.
N50 constitutes the top 50 giant blue-chip stocks that are financially strong and have the potential to grow. Since they are well-established businesses, they may grow at a slower pace than newer kids on the block, but can deliver consistent returns. They can also cope with market falls relatively well. The above drawdown chart exhibits that the N50 not only corrected less in market corrections but also recovered faster in comparison to mid- and smallcap counterparts, helping deliver a balanced return. Nifty BeES can be a suitable option for the young investors who want to taste the equity markets.
Limited liquidity has been a cause of concern in the Indian ETFs landscape for years. However, the Nifty BeES has been the most actively traded equity ETF in India, touching its record mark of a single-day traded volume of Rs 351 crore on the NSE in March 2022. Nifty BeES has comprised about three-fourth of the total traded volume of overall Nifty 50 ETFs. Bhatia of Nippon Life India AMC says, “We have seen increased participation across investor categories such as retail, HNIs (high net-worth individuals) and family offices since the onset of COVID, leading to a massive rise in volumes.” Higher liquidity helps investors to buy the units of ETFs at the desired price, leading to lower impact cost. Higher liquidity also results in narrowing bid-offer spreads. For instance, the impact cost for Nifty BeES on NSE was 0.03 percent (October 21, 2022). This lead to lower total cost ownership (TCW) of the ETF units.
Among the Nifty 50 ETFs, Nifty BeES scores well on all parameters including lower tracking error, lower expense ratio and higher traded volume.