The first Indian exchange traded fund -- Nifty BeES from Benchmark Mutual Fund has just completed its two months in the market. It tracks the S&P CNX Nifty Index, is structured as an open-end fund but unlike ordinary mutual funds, is listed on the NSE and trades like a stock. So, to buy or sell Nifty BeES, you have to deal with a broker who executes your transactions for a brokerage.
It has started, but is yet to take off. At the fundamental level, Indexing is far from being a mainstream investment in India. Nifty has not been anywhere in six years of its existence. At 1138 now from a base of 1000 points in November 1995, it does not present a compelling investment case. And this shows in the money with the Index funds as well, as ten of them manage a paltry Rs 670.85crore.
With these basic constraints, Nifty BeES has not been a blockbuster but made a modest beginning. Especially in terms of the benefits over an Index fund. Its NAV closely tracked the index and the price too was in close tandem. It traded every day, though with waning interest.
In the first two days Nifty BeES worth Rs 8.5 crore changed hands. But the turnover slipped, from an average daily turnover of Rs 77.3 lakh in the first month to Rs 24.2 lakhs in the second month. Even, the asset base has shrunk, from Rs 10.8 crore on January 31 to Rs 7 crore on February 28.
In terms of tracking the Index, Nifty BeES has done well, with a tracking error of only 0.02. Though it is early and not a relevant comparison, the tracking error of funds ranges between .15 and .28 - IDBI PRINCIPAL (0.15), UTI Nifty (0.20), Franklin India Index (0.15), Franklin India Index Tax (0.16) and Pioneer ITI Index (0.28).
On the discount front, it did just as planned by its design. Unlike listed closed-ends, it did not command a hefty premium or a steep discount. Its market price remained closely anchored to the NAV. In these two months, it traded at a marginal discount to NAV, an average discount of 0.48 percent, ranging between 0.49 and (-1.39) percent.
Early days for Nifty BeES, but it has done well in terms of what it set out to. And before you buy an ETF, you should be sold to Indexing. Investors are unlikely to scramble for Index funds too soon. Till it happens or if it happens at all, Nifty BeES seems really far off from being a meaningful equity option.