Benchmark ETF – Advantage Volatile Markets

Going forward we expect Volatility in the Movement. There can be sharp downward spikes on intra-day basis and a recovery at the end. As a small investor, how can you take advantage of this spike since you can’t avail this benefit with Mutual Funds which transact on the NAVs on closing basis. You can take Delivery of these units which will be held in your DEMAT A/C. For example, on 31/10/08, Nifty Bees made a Spike downwards and hit a low of 230 and lets since then has more than doubled beating every other mutual fund.

Benchmark Funds ETFs can be of great help. NAV of these ETFs keep moving with the market. The ones available and recommended for investment are – Nifty Bees, Junior Bees, Bank Bees and Gold Bees.

Depending on how you want to allocate your portfolio and then market condition, we recommend to take advantage of MARKET-FALL by using these instruments for investments.

We had a chance to touch base with Rajan Mehta, Executive Director @ Benchmark and here is an excerpt from few of the issues we raised before recommending these funds to you.

Why does NiftyBees always trade at Premium to the NIFTY Index on NSE ?

When you compare Nifty BeES with Nifty Index It might be appearing that it trades at premium. This happens because the Nifty Index you see is price index and does not capture dividends while Nifty BeES receives dividends so NAV of Nifty BeES tends to become higher. To avoid this continuous build up, we declare dividend to bring the NAV back to Nifty levels. Recently we have declared such dividend of Rs. 4.5 per unit and Ex date was 8th July. After ex date now Nifty BeES NAV is very near to 1/10th of Nifty. Also we tell investor that premium discount should be calculated from real time NAV of Nifty BeES (Available on our website) and not Nifty level. You can confirm this by checking data on our website by comparing Daily close and daily NAV.

Since this is an ETF, why don’t you reduce the creation unit to smaller lots, say 1,000 instead of 10,000 or 16,000 ? Are their any proposals from Benchmark to the concerned regulators to make this extremely attractive for small investors ?

Creation unit is entirely internal matter and there is no regulatory guidelines. Higher creation unit does not mean that it is not attractive to retail investors as they can trade in as little as one unit on the stock exchange. Cretion unit need to have optimal size because 1. there are minimum custodian cost per creation and 2. the basket which is being exchange should have smaller rounding off error.

If you are a HNI, then you can BUY them directly from Benchmark but the capital required for the same is much higher – few Million rupees.

Additional advantage of investing in Nifty BEES is you can trade the same, just like Traders trade Nifty Index.