Index-Based ETF

#1
Hi
How to buy an exchange traded index fund? I have an icicidirect account. Is it like buying the blue chip stocks? I read that it can be traded like a share. If so, can we buy during every dip in sensex/nifty and beat the index itself (by buying more during crashes). I want to know more about it.
 

Alchemist

Administrator
Staff member
#2
The ETF's can be traded just like stocks. All online trading sites allow trading in these ETF's.

The ICICI code for Nifty BeES (Nifty Benchmark Exchange-Traded Scheme) is NIFBEE.

The ICICI code for Nifty Junior BeES (Nifty Junior Benchmark Exchange-Traded Scheme) is NIFJUN.

If you buy and hold, then your returns will be similar to the corresponding index.

If you start trading, you can make more or less. It will be just like trading Nifty futures.

In BeES you can trade small quantities, but your brokerage will be higher than in futures.

Also BeES is not as liquid as the futures market.
 
#3
My question

Dear Alchemist/members
thanks for your nice reply.
My real question is:
Say I buy 1 unit of nifty at 5000.
then market crashes, I buy 2 units at 4000
Again when nifty recovers to 5000, i have 3 units at an average of 4500. I gain 10% whereas the nifty has not moved at all! Am I right?
If so, I would like to make it the major part of my portfolio, and buy incrementally during fall, and fixed amount monthly during rise.
Your answer is much anticipated.
Anyone with experience in ET index fund?
 

Alchemist

Administrator
Staff member
#4
Dear Alchemist/members
thanks for your nice reply.
My real question is:
Say I buy 1 unit of nifty at 5000.
then market crashes, I buy 2 units at 4000
Again when nifty recovers to 5000, i have 3 units at an average of 4500. I gain 10% whereas the nifty has not moved at all! Am I right?
If so, I would like to make it the major part of my portfolio, and buy incrementally during fall, and fixed amount monthly during rise.
Your answer is much anticipated.
Anyone with experience in ET index fund?
Yes it is possible.

As I said, it is just like a stock. Its value depends on the corresponding index.

You must keep two things in mind.

First
, the returns of the Nifty ETF may not exactly be that of the Nifty. Expenses of the fund will reduce your annual returns by 1%.

(Current expense ratio of the fund is 0.8%).

Also when the constituents of Nifty change, the fund has to change its portfolio. During this churning, the fund's return may be slightly different from the Nifty. (both positive and negative divergence from Nifty are possible).

The difference in returns is marginal and most probably will be less than 1.5% per year.

Second, just like stocks, you will be paying brokerage and taxes for trading ETF's. If you trade too much or try to make profits from each minor move, your brokerage and taxes will eat away your profits.

If you are able to time the market well, then definitely you can get better returns than the index itself.

Being an ETF, you also are assured that you are investing in the index and thus can expect growth in the long term.
 
#5
Good explanation. I really like the concept.

Because, in general, people keeps track of Nifty or Sensex, and not of individual stocks. So, it is better to invest in Index based ETF as one has kept track of the NSE or BSE, but the word of caution is already out as told by Alchemist. So, invest but cautiously.

Thanks Alchemist for explanation.
 
#7
I think it is right time to enter ETF (I have already purchased Nifty Benchmark ETF).
The reasons are:
1.It tracks index (blue chips)
2.There is no need to bother about individual company
3.It is like a mutual fund (fund manager does whatever is needed to track the index)(It is difficult to beat the index every time by mutual funds)
4.If you think that Nifty will be around 6000 at a future date (e.g., say 2010), every fall below is an opportunity to buy incrementally.
Friends, don't you think at least at some point of time Nifty will be 6000 (I believe it will be a lot more than that!)
5.In my opinion, it should be major part of my portfolio (instead of buying large caps often, we can buy this) with rest comprising quality midcaps and small caps
I request the opinion of boarders and Alchemist of course! (to confirm my views!)
 
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#11
When buying in Index funds, do note a few things.
- Many Index funds in India have large tracking errors for whatever reasons.
- Also some Index funds have high operating costs - comparable to manage funds.
There is no reason for an unmanaged fund to have operating costs comparable to
managed funds.

Hence buy an index fund which has the least tracking error & lowest cost of operation.

Overall, when I had done an analysis a year back, the UTI Nifty Index fund had the lowest
tracking error & low operating costs - hence that was what I purchased.

Note that the UTI Nifty Index fund is not an ETF - it's regular Mutual fund.
Also there is no entry load. No Exit load also if you hold it for a certain period of
time (forgot what's the period). This is one advantage over an ETF where you pay
broker's commision for both buying & selling.
 
#13
ETFs on SENSEX

I am interested in trading an ETF on the SENSEX. To the best of my knowledge, there are two such ETFs, SPIcE (from ICICI Prudential), and the Kotak SENSEX ETF. Are there others? If not, would anyone know the current expense ratios of the two I mentioned? Are there any other factors that might make one of these 'better' to trade than the other?

Thanks.

Varun
 

vasa1

Well-known member
#14
Yes, the liquidity of an ETF is similar to that of the securities comprising it.
I'm sorry but I disagree. The little time I spent watching NIFTYBEES on the trading screen, there didn't appear to be the liquidity that is found in the majority of NIFTY 50 stocks. There is a big gap between the bid and ask prices (relative to NIFTY 50 stocks).

There are even short intervals when the NIFTY 50 is moving one way and the ETF the other!

Don't take my word for it; check it out yourselves. As a matter of fact, I had posted on this topic quite a while ago here.

Of course, in the long term, the ETF will perform as does the underlying.
 

Alchemist

Administrator
Staff member
#15
I am interested in trading an ETF on the SENSEX. To the best of my knowledge, there are two such ETFs, SPIcE (from ICICI Prudential), and the Kotak SENSEX ETF. Are there others? If not, would anyone know the current expense ratios of the two I mentioned? Are there any other factors that might make one of these 'better' to trade than the other?

Thanks.

Varun
If you want to "trade" in ETF's, then you shouldn't be looking at the expense ratio.

Instead you should be looking at factors like liquidity and impact cost.

Compared to stocks, ETF's are illiquid and also have very high impact cost.

The last time anyone traded SPIcE was nearly a month back on 17th September 2008.

There have been no trades in SPIcE after that.
 
#16
It may be mockery question but I am very eager to know.
Is any provision of dividend in ETF.
please answer.


If you want to "trade" in ETF's, then you shouldn't be looking at the expense ratio.

Instead you should be looking at factors like liquidity and impact cost.

Compared to stocks, ETF's are illiquid and also have very high impact cost.

The last time anyone traded SPIcE was nearly a month back on 17th September 2008.

There have been no trades in SPIcE after that.
 

Alchemist

Administrator
Staff member
#17
It may be mockery question but I am very eager to know.
Is any provision of dividend in ETF.
please answer.
Yes.

If the underlying asset is giving dividends, the ETF may also give a dividend.

What happens to dividends?

Dividends received by the Scheme will be reinvested in the scheme. However, the Fund may also decide to distribute dividends to the investors.
Benckmark ETF Funds.
 
#18
Hi
Coming back after a long time, I kept on accumulating NIFTY at regular intervals with average cost of about 330. Last week sold about 15% at 430. Now on up move, would sell some more and on down move, would buy more as I feel it is now rightly priced.
 

vasa1

Well-known member
#19
Provocative quote:
For the wealthy, index funds have an image problem. They are considered the economy cars of the investing world: they’ll get you there but not in style and you’re always worried they may break down. Anyone at a serious level of wealth, the thinking goes, needs the equivalent of a luxury sedan, with strategic stock choices, hedge funds, private equity, real estate.

Burton G. Malkiel says this is all hogwash.
Source
 
#20
BEST ETF's?

In present condition of market, is it worth to buy any ETF's, which one is having lowest cost and also gives better return? I wish to hold it for long period.

Following are the few Code of ETF's at ICICIDIRECT. Which one is better for long span of 1 year or little less?

KOTPSU,
LIBEES,
MOTM50,
NIFBEE,
NIFUN,
PSUBAN,
INFBEE,
KOTNIF,
KOSEN,
RBETF,
SPICE
 
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