Benchmark Mutual Fund’s recently launched international Exchange Traded Fund (ETF) Hang Seng BeES got listed on the National Stock Exchange today. This is the first ever international ETF to be available in India.
An ETF is a mutual fund that trades on an exchange like a stock and can be bought and sold during the exchange’s trading hours.
The Hang Seng BeES is an open-ended scheme that will track Hong Kong’s Hang Seng index on a real-time basis. The ETF will have around 55 per cent holding in Chinese companies. It could invest up to 100 per cent in securities constituting the Hang Seng Index and it could also invest up to 10 per cent in money market instruments, government securities, bonds, debt instruments, cash at call and mutual funds and overseas ETFs based on the Hang Seng Index.
At the time of reporting (March 18, 4 pm) the Benchmark Hang Seng BeES ETF was trading at Rs 1,246.
The Hang Seng BeES ETF offers the growth option only. No exit load is applicable at the time of sale. Vishal Jain and Payal Kaipunjal will manage the fund.
The Advantages
To begin with, issues related to India will not affect the Hang Seng. For instance, India’s huge budget deficit could potentially have an impact on the stocks listed on Indian exchanges but stocks belonging to the Hang Seng will not be affected.
The Hang Seng also offers exposure to companies that are much larger in size than those available on the Indian stock markets. It also offers exposure to stocks of the type not available on Indian markets (for instance, you cannot invest in pure-play insurance stocks in India).
The Hang Seng index is much less volatile than the Nifty, which means that exposure to it will reduce the fluctuations in the value of your portfolio.
The Disadvantages
If you are investing in this ETF for diversification, that goal may not be fulfilled, given the high positive correlation between the Nifty and the Hang Seng.
Also remember that the Hang Seng has only 55 per cent exposure to mainland Chinese companies. The rest of the index comprises Hong Kong-based companies. Now Hong Kong is more of a developed market rather than an emerging market. Growth rates in the former tend to be lower. Not surprisingly, the returns from the Hang Seng have been lower than the returns from the Nifty (from October 2004 – March 17, 2010 the Nifty has posted 22 per cent while the Hang Seng has posted nine per cent returns).
Finally, for tax purposes the Hang Seng BeES will be treated at par with debt funds which means that you will not enjoy the exemption from long-term capital gains tax that you would if you invested in an Indian equity ETF.
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