What is ETF? Is it same as Nifty BeES? | CA Rachana Ranade - YouTube

Hey folks!!! CA Rachana Ranade here and I welcome  you all to another interesting lecture on bees,  

I know it has got nothing to do  with honey bees but let at least  

as sweet as honey, let's hope that our financial  education lecture is as sweet as honey tastes  

now let's understand what are B's okay, B's are  nothing but benchmark exchange traded schemes,  

I am sure you might be like what is this now so  let's understand each and every terminology one by  

one. The very first word is benchmark. Benchmark  means what? It is something like a standard  

something with which I can compare my own  performance okay so have we come across the  

concept of benchmark right back when we were  in school yes so just as an example if teacher  

would have told your parents that your child has  scored 85 percent okay now for your parents to  

understand is 85 percent good or bad? Possibility  number one can be they compare your performance  

with average performance of the kids in the class  okay generally parents should compare it with the  

most brilliant person in the class but let's  consider that aside if they compare it with the  

average performance in the class can I say on an  average assume that kids have gotten 83 percent  

then your performance is better than others so  your performance has outperformed the benchmark  

okay. What was the benchmark? Average marks which  the students scored in the class. Similarly for  

stocks what can be a benchmark benchmark a  standard with which I can compare that can  

be like nifty that can be like Sensex okay this  is just an example so I hope you have understood  

the concept of a benchmark so in in the whole  word of bees benchmark the first word is clear.  

What is the second one exchange traded scheme  in that exchange what exchange are the exchanges  

exchange where you exchange where you trade  in stocks and commodities in other securities  

best examples of exchanges BSC, NSC, right so  benchmarks exchange now traded schemes so exchange  

trader traded on the exchange schemes. Now scheme  is nothing but like a theme okay so for example uh  

a theme can be like investing in banks, a theme  can be like investing in blue chips, a theme  

can be investing in gold okay so all these are  different, different themes different, different  

schemes so I hope you have understood benchmark  exchange rated schemes that is nothing but Bee's. 

Now let's understand what could be the different  types of Bee's or different types of ETF's? I  

am sure you might have heard about the word ETF,  but just in case if you have not, we are going to  

talk about ETF's in another one or two minutes  okay. So till then let's understand what are  

the different types of bees or different types of  ETF's, possibility number one they can invest in a  

specific thing or they can invest in a a mixture  of things okay you might be like what is this  

let me give you a simple example consider a fruit  investing in a fruit single fruit or investing  

in a fruit salad okay now what is investing in a  fruit investing in a fruit is like investing in a  

single commodity okay so if I want to turn  this apple into gold in this case I can say  

that I am investing in gold through a gold ETF or  through gold bees okay so in this case what is the  

scheme scheme is investing only in a single theme  single scheme which is of gold nothing else okay,  

possibility number two now it's a fruit salad now  it's not only one fruit there are bunch of fruits  

different different fruits mixed into a fruit  salad now instead of multiple fruits if I go with  

multiple bank shares that will be like  bank bees or it will be like bank ETF's.  

I hope you are understanding this right so  if you remember bees is S stands for scheme  

scheme can be like investing in a single thing,  single theme or it could be a mix of a theme  

okay, so there could be a few other ETFs as well  like you might have heard about Bharat Bond EFT,  

in which a majority of public sector undertakings  are, are the ones in which the investment is done  

okay so I hope you have understood that there  are multiple it could be a Sectoral ETF like it  

could be a Bank ETF, it could be a Commodity  ETF like a Gold ETF, it could be it could be  

like Bond ETF's like Bharat Bond ETFs but more on  ETFs is coming up in the next part of the video.  

So just in case if you do not know what is an  ETF, ETFs are nothing but two investment ideas  

brought together okay so understand EFT is nothing  but a combination of something like a stock  

plus mutual fund now why is an ETF like a stock  first of all let's understand why it is like a  

stock? Number one because it is it is traded on  the stock exchange that is why it is like a stock.  

Number two it is prices keep on fluctuating every  second, every microsecond that is why it is like  

a stock. Number three if we were to buy an ETF,  then we can set a limit order I am sure you might  

be knowing that there is something like a market  order, there is something like a limit order,  

we can also set a limit order for ETF that is why  it is like a stock. Number four whenever we buy  

it if it directly comes to our Demat account that  is the reason why it is like a stock okay so I  

hope you have understood why ETF's is very similar  to a stock. Now let's understand why it is like a  

mutual fund but wait not like any mutual fund it's  very close to an index mutual fund. Now what's  

an index mutual fund, it tracks an index so just  like it can be like a nifty ETF like nifty bee's  

right second point it has comparatively lower  expense ratio now what's expense ratio if you  

want to know that I have already covered it in one  of my previous videos you can check it out later  

and number three the portfolio turnover ratio  is also comparatively less if I check it,  

if I compare it with actively managed mutual  funds so I hope you have now understood  

what is an ETF. ETF is nothing but a combination  of stocks and a combination of index mutual fund  

instead of saying a combination directly it's  very close to both these concepts put together. 

Well I hope you have understood what is Bees, you  also have understood what is ETF's, but now the  

big question what is the connection between Bees  and ETFs the simplest connection is nothing but  

Bees is a type of ETF's okay when was this first  launched? Nifty ETF was nifty bees basically was  

the very first ETF which was launched in India  way back in 2002. Now if I am talking about  

buying nifty can I buy nifty directly? No, I can  not, I can not buy nifty, like I am buying a stock  

I might have to buy its future or its option but  if I am scared of futures and options then what  

is the scenario? what is the alternative?  For that I can buy nifty bees okay now  

nifty bees but will I have to invest a lot of  money so for example one unit of nifty is today  

as I am shooting the video it's somewhere  around fourteen thousand five hundred. Does  

it mean that if I were to buy hundred, fourteen  thousand five hundred into hundred? No, no, no,  

one unit of nifty bees is approximately 100th of  nifty okay so if you check this out on the screen  

as I am shooting the video nifty had closed on the  previous day on fourteen thousand five zero seven  

to uska one hundredth will be 145 rupees roughly  okay but if you now check nifty India ETF's  

right here it is around 155 okay so roughly  100th of nifty so I hope you have understood  

that how you can get an exposure to the best 50  companies, to the top 50 companies by investing  

a comparatively very small amount that is the  important feature of nifty bees number one.  

Number two if I want to compare nifty bees  with some other bees like what like gold bees,  

like bank bees, then which one is comparatively  cheap if I am considering expense ratio  

okay again I told you I have covered expense  ratio in one of my previous videos but if you  

can check it out on this table again for Nippon  India ETF bank bees the expense ratio is point  

one eight percent for Nippon India ETF gold bees  the expense ratio is point eight two percent  

but if I am talking about Nippon India ETF nifty  bees it's just 0.05 so I hope you have understood  

that it is also comparably cheaper expense ratio  is comparatively less and one more important  

advantage of nifty bees is that it's absolutely  transparent I know where my funds are going to  

be packed so if I invest in some large cap fund in  some blue chip fund I do not know which blue chip  

I do n0t know which large cap I do not know when  the investment manager when I do not know when  

the fund manager basically is going to shuffle the  stocks but here I know it's one of your only nifty  

stocks so can I say transparency is also one of  the biggest advantages? Answer is absolutely Yess. 

Now you might have understood that ETF look really  good look pretty attractive then has ETF grown  

very nicely in the past few 10 years or  not? For that just have a look at this chart  

ETFs have grown at a cage year of 70 percent in  last 10 years that's that's a mind-blowing growth  

now what could have been the possible key drivers?  Number one EPF which is the employers Provident  

Fund organization they have started investing  in nifty ETF's and through and other ETF's.  

Number two even our government has done a lot of  divestment through ETF's like Bharat Bond ETF's  

and in fact if you are aware of this they have  done multiple series of Bharat Bond. so more  

and more et more and more exposure more and more  people are going to invest in ETF's and more and  

more investment in ETF's this graph is going to  go higher and higher right. The second one which  

I would like to also show you the second graph  talks about percentage of ETF AUM to the equity  

AOM so in simple words if people are investing  in equity mutual funds versus people investing in  

ETF's okay so assume that out of hundred which is  the total equity AUM out of hundred just barely  

one percent was being invested in equity a AUM in  ETF way back in 2009 and if you now check in 2019  

roughly this number is touching 12 percent so out  of the total equity AUM 12 goes to ETF AUM. I hope  

you are understanding that the ETF percentage  is going up and up as the years are passing by. 

Let's move on and try and understand that assume  that I am investing in bank nifty one of the most  

famous in front of space bank nifty versus if I  invest in bank nifty but through bank bee's okay  

in that case will my returns be exactly same do  you think so how do you feel that the nifty bee's  

might give a little bit less returns as compared  to the nifty returns nifty bank nifty returns  

the second answer is correct your nifty bank nifty  bee's will be giving you a little bit less returns  

as compared to your bank nifty why because certain  expenses are involved here don't you think that  

there'll be some kind of management fee involved  and some other expenses also involved? The answer  

is obviously yes well do we have any data to prove  this why not I am just comparing Nippon India  

ETF bank bees with nifty bank TRI is total Return  Index. Well I have explained what is total return  

index absolutely again in detail in my course on  Magic Of Mutual funds so if you want you can have  

a look at that as well right so coming back to  the discussion if you check the one year return  

for bang these it is minus 37 percent 37.52 I  am ignoring the decimal points but nifty bank is  

minus 36 okay so nifty buy both are a negative but  at least nifty bank nifty is a little bit less in  

negative if I compare three returns now bank nifty  is three point two three minus but Nippon India  

bank bees are minus three point eight two so again  a little bit worse and if I talk about a five year  

return which is a positive return bank nifty has  given one point six seven percent and here if I  

talk about Nippon India bank bees is that it's  one point one two percent only so I hope we have  

understood that everywhere the index is going  to perform a shade better than the index piece.  

Now let's understand mutual funds or ETF's which  ones are better so what we have done is that this  

is money control website and here we've just  tried to rearrange or arrange the returns data  

in a descending manner in simple words the mutual  fund with the highest return is right there on  

number one and the returns go on decreasing right  so for example you can see quant small cap fund  

that is given like 75.17 percentage return in  one year this is like an exceptional return of  

course but if you check from the highest one to  the lowest one which is DSP healthcare whatever  

could fit in into the screen it's still 51.68  percent okay so mutual funds have performed pretty  

well in the last one year okay these are somewhere  around top 10 mutual funds which have taken into  

on the screen. Now let's compare top 10 ETFs again  descending order may you can see the returns on  

the screen Motilal was one NASDAQ Hundred, ETF  has given the best returns 37.37 percent and  

the last one being ICICI prove mid cap select  ETF which is 26.10 what is this what does this  

mean it means that if I am talking about top 10  returns for mutual funds versus top 10 ETF returns  

mutual funds have outperformed ETF's recently you  might have heard about Mr. Warren Buffet saying  

that ETFs are way better than mutual funds i feel  he is not wrong but in the US context where the  

markets are absolutely mature in India where it's  it's a maturing market it's a developing market  

in India still fund managers do have a lot  of scope to find out the gems and jewels  

which can give you better performance as compared  to the index as well so if you want to generate  

that higher that higher return Dil mange more  category then mutual funds may give you better  

returns but yes if you're talking about a  kind of safety then ETF's can be better. 

Well if you want to know how to buy these  it's as simple as buying any stock so you  

go to your portal just search for nifty bees  or any other bees whatever you want to buy  

place how much quantity you want to buy,  place at what price you want to buy and  

it's as good as like you take a delivery of  your stocks you can take even delivery of  

bees so it will be as good as buying and so if  you are buying nifty bees it's as good as taking  

a position taking a delivery of nifty bees taking  a position of nifty without going into the f end  

of space but if you want to buy nifty bees on  the exchange of course you need to have a Demat  

account and if you don't have a demand account  of course link is there in the description box. 

Now if you want to understand the taxation aspect  of bees then just it's as simple as this if I am  

talking about a gold ETF or a bond ETF they are  taxed same like a debt mutual fund you can just  

check out what are the rates for short term  for long term in one index session benefits  

also apply okay and if I am talking about nifty  bee's the nifty b's are taxed like equity mutual  

funds again you can check what is the scenario for  long term and what is the scenario for short term. 

Well this last part is a little bit tricky if you  can understand it fantastic okay let's take this  

example assume I have nifty bee's in my portfolio  and these nifty b's have already given me a 15%  

return okay now what I feel that market might  crash how will I protect my position how will my  

how will I hedge my position is there  any perfect hedge for my nifty bee's?  

Answer is Yes. What I can write a call which  called nifty obviously possibility number two  

I can short the futures which futures nifty  futures correct so even if market falls my bees  

returns will fall a little bit but the position  the derivative hedge which I have taken  

that will give me good returns and all  in all my profits will be protected  

right can I do the same thing for mutual funds  can I get an exact hedge? Answer is No. If I  

have a mutual fund portfolio let's say it's a  balanced fund do i have an exact hedge for that  

answer is no I don't have an exact edge for  it okay so i hope you might have understood  

this last part of the video a little bit advanced  it was but if you have fantastic if you haven't  

it's okay try and read more about hedging and  then you might be able to understand this. 

well I hope you have enjoyed this amazing  knowledge packed session on bees if you have  

don't forget to share this video with your friends  till then take care, Jai Hind and bye, bye.