Benchmark Mutual Fund has launched India's first open-ended banking sector exchange traded fund - Banking Index Benchmark Exchange Traded Scheme (Bank BeES). The intial public offer for the fund opened on May 25, 2004 and closed on May 26, 2004. Bank BeES will be listed on the Capital Market Segment of NSE with effect from June 4, 2004 in the form of an Exchange Traded Fund (ETF). The Fund will track the CNX Bank Index.
Bank BeES would invest in the shares of the 12 largest publicly traded banks in India in the same proportion as in the CNX Bank Index. However, unlike a normal index fund, Bank BeES would be an exchange traded fund which implies that it can be bought and sold at intra-day prices throughout the trading day through a stockbroker (using a demat account). In this respect it would be more like a share than a mutual fund.
A major benefit of an ETF over a normal index fund is its lower tracking error. This is because the units are tradeable and therefore, underlying stocks do not have to be bought or sold. Thus, entering and exiting investors do not affect the existing investors.