What is Nifty BeES? Meaning, Features and How to Invest?

Looking for a simple way to invest in the top 50 companies listed on the NSE? Nifty BeES offers a convenient route by tracking the performance of the Nifty 50 index, allowing you to diversify across various sectors with just one trade. Read on to learn more about Nifty BeES, its features, and how to invest in it.

Nifty BeES - What is it?

Nifty BeES, short for Nifty Benchmark Exchange-Traded Scheme, is a type of Exchange-Traded Fund (ETF) that aims to replicate the performance of the Nifty 50 index, which represents the top 50 companies (in terms of market capitalisation) listed on the National Stock Exchange (NSE) of India.

It's like owning a slice of India's top companies listed on NSE (in terms of free float market capitalization) in a single, low-cost, transparent exchange-traded fund (ETF).

ETFs are investment vehicles that combine the features of mutual funds and stocks. They offer liquidity, and diversification, and are cost-efficient than mutual funds. 

Features of Nifty BeES

The salient features of Nifty BeES are -

• Benchmark Asset Management Company launched Nifty BeES, the first ETF in India, on 28 December 2001. Nippon India Mutual Fund currently manages this fund.

• Every unit value of Nifty BeES represents 1/10th of the S&P CNX Nifty Index and 1/100th of the Nifty 50 Index value. 

• Nifty BeES provides real-time net asset value (NAV) and reflects Nifty’s real-time performance, enabling investors to buy and sell Nifty BeES anytime on stock exchanges similar to stocks.

Working of Nifty BeES 

When an investor buys a unit of Nifty BeES, they invest in a share of a fund that holds a basket of these 50 stocks in the same proportion as the Nifty 50 index. 

This implies that the returns of that ETF are in line with the benchmark index. However, the returns of the ETF can vary from the benchmark index for various reasons, such as fund inflows and outflows, trading and fund management costs, etc. This deviation of the ETF returns from that of the benchmark returns is called Tracking Error.

Therefore, investors can take advantage of Nifty BeES, a diversified and relatively lower-risk way to invest in the Indian stock market, and the benefits of a passive investment strategy. 

How do You Invest in Nifty BeES?

The process or steps to invest in Nifty BeES are-

• You should have a Trading and Demat account with a stockbroker.

• The next step is to search for Nifty BeES using its symbol in the trading app or platform.

• You can then choose the number of units to buy and place a buy order during market hours.

• The amount for the said unit order must be paid using the linked bank account.

• Once the order is executed, the units will be credited to the investor’s Demat account.

• You can monitor the investment by tracking the Nifty 50 Index and the Nifty BeES NAV.

Advantages and Disadvantages of Nifty BeES

After considering the various details of Nifty BeES and the steps for investing, let us consider the advantages and disadvantages of investing in Nifty BeES to understand this investment option better.

Advantages of Nifty BeES

The key advantages of Nifty BeES include,

• Diversification: Nifty BeES provides investors with exposure to the top 50 companies in India, spreading out risk and reducing the impact of any single company's performance.

• Low Cost: The expense ratio for Nifty BeES is typically lower than that of actively managed funds, meaning investors pay lesser fees, which can enhance overall returns.

• Liquidity: Nifty BeES can be bought and sold on the stock exchange during market hours, making it easy for investors to enter or exit their positions as needed. A Demat account is required to invest in ETFs.

• Transparency: Investors always know what stocks are included in the Nifty BeES, which mirrors the Nifty 50 Index, ensuring clear and consistent investment holdings.

Disadvantages of Nifty BeES

The key disadvantages of Nifty BeES include,

• Market Risk - Nifty BeES is subject to market risk, meaning its value can fluctuate based on the performance of the Nifty 50 Index, which can result in potential losses during market downturns.

• Dividend Uncertainty - ETF investors do not receive dividend payouts from their ETF investments. Typically, the dividends received by the Asset Management Company from individual companies that are a part of the ETF basket are reinvested in the fund. 

• Limited Growth Potential - As a passive investment, Nifty BeES aims to replicate the index performance and may not achieve the higher returns that active fund management might offer in identifying outperforming stocks.

Taxation of Nifty Bees

Nifty BeES are ETFs that invest in stocks (equities) and, thus, are taxed in line with equities and equity-oriented funds as per the Income Tax Act 1961. 

Units held for more than 12 months are subject to long-term capital gains, while units held for less than 12 months are subject to short-term capital gains. The revised applicable STCG and LTCG rates as per the Union Budget 2024-25 are as below.

Conclusion

Nifty BeES offers a practical and cost-effective way for investors to gain exposure to the top 50 companies in India, providing diversification, liquidity, and transparency. Its low expense ratio and real-time trading make it accessible to new and experienced investors. However, it comes with risks similar to investing in stocks, making the investment vulnerable to market downturns