Index-Based ETF

#21
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.
Since an index fund tracks an index, all index funds tracking the same index should give the same returns. But in reliality it may vary a bit because of 2 things.

- Tracking errors
- Expense ratio.

Of the top of my head, I don't know the tracking error percentage of different index funds, but an article I had read 4-5 years back showed that UTI Nifty Index Fund had the lowest tracking error at that time - it's not an ETF, though. I also think Benchmark ETFs have low tracking errors.
You can compare expense ratios at valueresearchonline.com.

If you want to hold one for a year - I would recommend the UTI Nifty Index fund.

The expense ratio is 1%.

If you want to hold for 3-4 years, I would recommend Benchmark Nifty Index ETF - this has an expense ratio of 0.5% but you will have to pay brokerage at both buying & selling time - so this is good if you are holding for a long time.

Nifty Index composes around 60% of the NSE market capitalization.

If you want to add a second index, add the Nifty Junior - Benchmark has an ETF tracking this. Nifty + Nifty Junior would cover around 70% of the NSE market cap.

Benchmark Nifty Junior has an expense ratio of 1%.
 

man4urheart

Well-known member
#22
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

Why didn't you invest when nifty was 2200 in 2 summers back.

What about when it was stuck at 3800?

What about when it was stuck at 5400?

Why now, now that risk of falling down has increased?
 

Atiker

Active member
#23
Why didn't you invest when nifty was 2200 in 2 summers back.

What about when it was stuck at 3800?

What about when it was stuck at 5400?

Why now, now that risk of falling down has increased?
The very reason that newbies (in a sense who have never burned their fingers in a crash) are bullish make me bearish :) Their confidence to the brink of arrogance makes me more uncomfortable.

I am not exiting any long positions but also not initiating any new. My current age mandates to invest but the market conditions are forcing me to save.

Anyways I prefer that the market remains low, as low as possible during my investing age. I don't want returns now but a decade later. Stock Market Crash is good for "investors" if it doesn't affect job opportunities.
 
#24
Graham's sign of an overheated market was lots & lots of rubbish IPO's appearing in the market.

My personal opinion is that though the market is overheated, the possibility of a major crash is low. I don't see the type of unbridled enthusiasm as yet that was there last time round. Almost everyone seems to remember the last crash & seems wary of it. The day people say that this isn't like last year & that market rules have changed & history isn't relevant anymore is the time to start being very scared. People's memory is rather short, so it will happen, just not that soon.
 
#25
Answer

Why didn't you invest when nifty was 2200 in 2 summers back.

What about when it was stuck at 3800?

What about when it was stuck at 5400?

Why now, now that risk of falling down has increased?
Frankly I burnt all my fingers in 2008 crash since 3 years I am in Market, Except few IPO I have made effective loss only, Now I am only investing in IPO , I don't have knowledge of ETF's , recently I invested in GOLDBEES ETF for approx 4000/- Rs , I don't know what to do for surplus money? I am felling tensed for normal equity as I don't know what happned if I buy now a days in this bearish market, But if I invest in ETF's like Nifty Junior or other, I may make lesser loss in event of heavy market fall compare to single equity ?

What are seniors opinion for investor like me?

Except IPO as well as MF/SIP , I always made loss in individual equity so far effectively from span from 2007 to 2010?

Some time I feel it is better to do fixed deposit , at least I will not lose my principal amount.
 
#26
Frankly I burnt all my fingers in 2008 crash since 3 years I am in Market, Except few IPO I have made effective loss only, Now I am only investing in IPO , I don't have knowledge of ETF's , recently I invested in GOLDBEES ETF for approx 4000/- Rs , I don't know what to do for surplus money? I am felling tensed for normal equity as I don't know what happned if I buy now a days in this bearish market, But if I invest in ETF's like Nifty Junior or other, I may make lesser loss in event of heavy market fall compare to single equity ?

What are seniors opinion for investor like me?

Except IPO as well as MF/SIP , I always made loss in individual equity so far effectively from span from 2007 to 2010?

Some time I feel it is better to do fixed deposit , at least I will not lose my principal amount.
Investing / trading takes a lot of time to analyze the stock price and company.

Since you have made profit in MF/SIP, why not continue with it? :rolleyes:.

Fixed deposit is not bad either.
 
#27
I have a general question on the expense ratio for ETFs.

How is this charged annually ? For example, if I have 10 units of NIFTYBEES (from Benchmark) in my demat, how are they going to charge the 0.5% expense ratio annually?
 
#28
I have a general question on the expense ratio for ETFs.

How is this charged annually ? For example, if I have 10 units of NIFTYBEES (from Benchmark) in my demat, how are they going to charge the 0.5% expense ratio annually?
The charge is deducted from the corpus and reflects in the daily NAV quoted. This means that off the outstanding corpus (510 Cr as on 31.12.10), they will charge .5% or 2.5 crores as expense, this is amortized over the year and reflects in the daily NAV.

So the NAV which Benchmark AUM publishes for NIFTYBEES is inclusive of all charges.
 
#29
The charge is deducted from the corpus and reflects in the daily NAV quoted. This means that off the outstanding corpus (510 Cr as on 31.12.10), they will charge .5% or 2.5 crores as expense, this is amortized over the year and reflects in the daily NAV.

So the NAV which Benchmark AUM publishes for NIFTYBEES is inclusive of all charges.
Thanks for the clarification. I still don't understand how an ETF that is traded on the exchange can charge it's end retail investors an annual expense of .5% ?

Will it be deducted from the dividend payout of the underlying basket of stocks or will it be reflected as a tracking error (since the NAV will go down after taking expenses into account - and a difference in the NAV and the index it tracks will be a tracking error ) ?
 
#30
Thanks for the clarification. I still don't understand how an ETF that is traded on the exchange can charge it's end retail investors an annual expense of .5% ?

Will it be deducted from the dividend payout of the underlying basket of stocks or will it be reflected as a tracking error (since the NAV will go down after taking expenses into account - and a difference in the NAV and the index it tracks will be a tracking error ) ?
If the expenses are met from the dividend payout of the underlying basket of stocks, then there should be no tracking error. Current NIFTY dividend yield is 1.13% and the expense ratio for NIFTYBEES is 0.5%. Hence, expenses can be met from the dividend yield.

Now an investor can purchase NIFTYBEES both at the exchange and from the fund itself. Check here

In case of primary purchase from the fund, with lot size of 10,000 units, all charges are recovered from the investor upfront. Refer here

So in a nutshell we can say, the costs incurred are

Primary Purchase (from fund) : Upfront Charges
Secondary Purchase (trade at exchange) : Brokerage

And in both cases the recurring charges are met from the dividend yield.
 
#31
Thanks for the clarification. I still don't understand how an ETF that is traded on the exchange can charge it's end retail investors an annual expense of .5% ?
Do you understand how expenses work for non-ETF mutual funds?

i.e. is your doubt specific to ETFs or all mutual funds?
 
#32
My question was specific only to ETFs. I had an idea of how expenses were charged for normal mutual funds but I was having some difficulty in understand the expenses as applied to ETFs, although they are pretty much similar.

I do understand better now ( after the explanation by Prudent_Investor ) on the expenses charged for the ETFs. Apart from the dividend , it appears that for some ETFs a part of the cash component in the creation unit can be charged towards expenses.

From Quantum Mutual Fund > Schemes and NAV > Quantum Index Fund ETF :

The Cash Component represents the difference between the applicable net asset value of a creation unit and the market value of the Portfolio deposit. This difference will represent accrued dividends, accrued annual charges including management fees and residual cash in the scheme

Expenses can also contribute to a tracking error :

From http://www.quantumamc.com/Downloads/PDFs/QIF_SID_28052009.pdf

... costs of trading, management expenses and other factors which may cause tracking error.
 
#33
My question was specific only to ETFs. I had an idea of how expenses were charged for normal mutual funds but I was having some difficulty in understand the expenses as applied to ETFs, although they are pretty much similar.

I do understand better now ( after the explanation by Prudent_Investor ) on the expenses charged for the ETFs. Apart from the dividend , it appears that for some ETFs a part of the cash component in the creation unit can be charged towards expenses.

From Quantum Mutual Fund > Schemes and NAV > Quantum Index Fund ETF :

The Cash Component represents the difference between the applicable net asset value of a creation unit and the market value of the Portfolio deposit. This difference will represent accrued dividends, accrued annual charges including management fees and residual cash in the scheme
All regular mutual funds also maintain cash reserves. As a matter of fact, the need to maintain cash reserves is greater for a regular mutual fund as compared to an ETF.

Regular mutual funds need greater cash reserves for covering redemption, whereas ETFs do not need the same.

Expenses can also contribute to a tracking error :

From http://www.quantumamc.com/Downloads/PDFs/QIF_SID_28052009.pdf

... costs of trading, management expenses and other factors which may cause tracking error.
I am not convinced about this. Cash component does contribute to the tracking error, however it's not because of expenses.

I think expenses would be handled identically in both a regular fund & an ETF.

It's only the buying & selling of stock which is handled differently in an ETF both from choice point of view & the mode of selling & buying.
 
Top