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ETF Investing – Nifty BeES & Exchange Traded Funds क्या हैं, कैसे Invest करें? - YouTube
Channel: Asset Yogi
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ETF
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meaning Exchange Traded Funds
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What are these?
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What are Nifty BeES?
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We received so many of these types of questions in the past.
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The last video we did was on Index Fund,
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in that too we got a lot of queries to do a detailed video on ETF.
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ETFs are very similar to Index funds but still, there are some differences.
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And ETF market growth in last 5, 5 and a half year is it grew by 20%.
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So what else is special about ETF, that's what we are going to know in this video.
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We will learn
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What are ETFs?
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How do they work?
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How many types of ETF are there?
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How ETF market grew and why?
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How much is the expense ratio? Meaning how much ETF costs?
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What are the tax implications of ETFs?
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Why invest in ETFs?
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What are its limitations and what are tracking errors?
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And finally, how can we invest in ETFs?
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The video will be interesting stay tuned.
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To watch the latest finance videos, subscribe to this channel,
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press the bell icon and click on all, so that you get the notification of the latest video.
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And friends if you want to learn more about the stock market and investments.
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You can follow our playlist,
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there are master investment series for the stock market,
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mutual funds series, there are real estate series and series bonds as well.
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You can get all these links in the description box below.
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You can also get other important
investment-related link down below.
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First of all, let's understand what are ETFs?
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Now see, as we saw in Index Funds, whenever any mutual fund
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invests money in any Index.
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Index means like nifty is an Index.
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Sensex is an Index.
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Nifty Next 50 is an Index.
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Like this, there are Sectoral Indices as well, like there is Index for IT sector.
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If any fund invests in an index like this.
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So for that, what options do we have?
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One is Index Fund,
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Second option is of Exchange Traded Fund.
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So this Exchange Traded Fund which we call ETF in short,
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it collects funds from investors, like in a mutual fund, funds are collected.
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After that
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whatever Index it's following, for example if it's following Nifty,
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So the top 50 Indian companies and whatever proportion they share in Nifty,
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In that proportion, it will buy the stocks.
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So following an Index, it works just like an Index fund.
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Then how is it different?
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See, first of all, full form of ETF is Exchange Traded Fund,
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that means it is being traded somewhere, it is being traded at the exchange.
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That means
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NSE or BSE which is our stock exchange, ETF are traded there.
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it means, it is also performing like stocks.
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that means for this we want a Demat account.
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We don't need a Demat account to invest in an Index fund or Mutual fund.
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And by chance, if you don't have a Demat account already,
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So I have given a link in the description box.
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You can open it and you will find the latest offers in the description.
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And finally, we will also see how can we buy ETF through the Demat account.
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And I will also show a small demo.
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But before that let's minutely understand the working of ETF.
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So see, in an Index fund and Mutual funds, money is collected from investors
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and the fund gets the money.
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After that, it invests it.
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So if new investors want to join in,
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So it's Asset Under Management could keep on increasing.
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That means if an Index fund or Mutual fund
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of a thousand crore is launched today,
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That could of two thousand crores as well tomorrow,
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it could be of ten thousand crore day after tomorrow as well.
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But Exchange Traded Fund works differently.
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Exchange-Traded Fund works like the stock of a company.
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Let's understand it with a comparison of a business.
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See whenever any business wants money if it raises money from the market
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it brings an IPO,
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And suppose it raised a thousand crore from IPO
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so that a thousand crores come to them only once.
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Similarly, as the business operates, ETF operates in the same way
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Whenever a New fund come which we call NFO in short,
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it is also like an IPO in a lot of ways.
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So at that time,
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the fund gets the money after that fund doesn't get the money.
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It means it doesn't get money under ETF after that.
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So suppose any fund, raised 500 crores from investors.
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So here Asset Under Management is just going to be 500 crores.
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Now the question arises, what is issued to investors?
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Like in the case of Mutual funds, mutual units are issued.
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Here in ETF,
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whoever is making that trust or company,
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whoever management company launched the ETF,
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shares of that are given to investors.
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So as there shares of a business,
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so similarly there are shares of ETF that's one unit.
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So suppose there are a thousand investors under 500 crore and hypothetically
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let's suppose everyone invested equally.
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So total shares of ETF will be divided among those 1000 investors.
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And this ETF share or unit,
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these are traded in the stock exchange just like stocks are traded.
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similarly 1 unit of ETF trades.
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We buy or sell just that.
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So we broadly understood what are ETF and how do they work.
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Now let's understand the types of ETF.
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Broadly only 3 types of ETF works in India.
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Equity ETF, Debt ETF and Commodity ETF.
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But there are a lot of ETFs in mature markets like that of USA,
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but we will concentrate on only 3 ETFs, India mostly has these only.
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First of all, let's talk about Equity ETF.
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So as the name suggests investing in equity means investing in stocks.
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And it generally follows one particular Index.
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And see most of ETF, more than 90% follow some of the other Index.
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So earlier as we gave an example if someone is tracking Nifty,
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if there is an ETF of Nifty,
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so it will track the top 50 companies.
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There was India's first ETF by the name of Nifty BeES,
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which launched in 2002.
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Full form of Nifty BeES, BeES stands for
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First Be means Benchmark,
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after the company Benchmark A and C which launched,
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Benchmark comes from that name.
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And after that Exchange Traded and S for the scheme.
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Benchmark Exchange Traded Scheme.
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And Benchmark A&C was also renamed Nippon India.
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So this we talked about a broad Index like Nifty, Nifty Next 50, in the same way
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Sensex could also have its ETF.
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Other than that we have an option for Sectoral ETF.
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That is also a type of Equity ETF.
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Now here, investments are done under sector,
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like some Index of IT could be followed.
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Consumption means just like a lot of consumer-oriented companies
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ETF of that could be made, could be of banking or technology, etc.
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So this was our Equity ETF.
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In the second number comes Debt ETF.
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This means when an ETF invests in bonds we call it Debt ETF.
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And what type of bonds could these be?
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These could be gov. bonds and they could also be bonds of private companies.
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But the question arises why not invest directly in bonds?
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What is the need to invest in Debt ETF?
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See here we get good liquidity, we can buy/sell anytime
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because it is being traded-in exchange.
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A lot of bonds are not traded in exchange,
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and even if they are traded in exchange their liquidity is not that good.
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So that's why when you invest in bonds you need to wait till maturity,
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But if you invest in Debt ETF, you need not wait till maturity.
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And when did Debt ETF start in India? It started in the year 2004.
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There was an ETF launched by the name of Liquid BeES,
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which was also launched by Benchmark company.
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Now third is Commodity ETF.
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Commodity means which could invest in gold, silver
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oil and it could invest in more commodities like this.
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But the most popular ETF in these are Gold ETF.
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And it started in India in 2007.
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Gold BeES was the first ETF that was too launched by Benchmark company.
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In fact, due to Gold ETFs, ETF became popular.
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You might remember recession came in 2009 and whenever recession comes,
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so people start increasing investment in gold.
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From 2009 to 2014 gold shares took more than 50% market share of total ETFs.
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So from this, the question arises how does the ETF market grow?
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In the past 5-10 years.
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If I share data of 2015, then an estimate of Rs 15,000 crore AUM was of ETF.
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After increasing in march 2021 means in FY 2021,
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grew to Rs 2.9 lakh crore which is almost 20 time.
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Earlier what the market share was, if we see in comparison to the mutual fund,
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so compared to mutual funds it was less than 1%.
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Now its market share grew to 7%.
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We saw the journey from 2015 to 2020, but before that, which we talked
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that Gold ETF started to become popular,
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From 2009 to 2014.
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In 2009 market share of Gold ETF was around 51%.
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In 2013 it grew to 88% market share,
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that means mostly the money was going for gold before 2014.
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But in 2014 some changes happen, and they happened,
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to both the supply side and demand side.
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Here govt. intervene in both the demand side and supply side.
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In 2014 Govt. launched CPSE ETF.
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That means investing in bonds of Central Public Sector Enterprises.
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Then in 2019 Bharat Bond ETF also came.
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We did a detailed video on Bharat Bond ETF.
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So this was for the supply side from the govt. that liquidity would be good in ETF.
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Other it's a little bit hard to invest in govt. securities.
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So basically you need to wait when this type of security would come.,
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it is a particular window, you need to invest in only during that.
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But the most special thing about ETFs we can buy/sell them anytime
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because it is being traded-in exchange.
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So this was the intervention on the supply-side from the govt.
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Second, there was intervention from the demand side too.
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EPFO means Employee Provident Fund Organization,
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those funds also started to go in ETF.
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And along with that National Pension Scheme also invest in ETFs nowadays.
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So these were some big reasons why so much investment in ETFs started.
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On the other side investor too got educated and In today's date
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a lot of people are also preferring ETFs.
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And why are they preferring?
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A very big reason is Expense Ratio,
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because these are very cheap compared to mutual funds.
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As you might remember we talked about Index funds so costing under that
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comes on an average from 0.1% to 0.3%.
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Here also it almost comes that much if we talk about Equity ETF,
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There it starts just from 0.01%.
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The expense ratio.
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Then who follows general Index like Nifty, Sensex, their cost is very low.
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It ranges from 0.01% to 0.1%.
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But this sectoral ETF like someone is investing in IT, someone in pharma
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or if someone is investing in consumption.
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They have a little high fee but not that much, it ranges from 0.1% to 0.3%.
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Then comes out Debt ETF, their cost could be generally seen from 0.1% to 0.3%.
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Then comes out Gold ETFs.
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This expense ratio could be a little high ranging from 0.5% to 1%.
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Now if we compare ETFs to the mutual fund, so as we saw in an Index fund,
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here almost
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cost come to 1/10th.
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So this we learned about its cost now let's quickly understand its Taxation.
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Now, how tax is applied to any investment?
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That is applied to our capital gains.
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This means it is applied to the profit that we got from the investment.
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If we face a loss in any investment, then tax is not applied.
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So first of all let's talk about Equity ETF.
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Equity ETFs are treated just like mutual funds.
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So here, if the total gain of equity is only Rs 1 Lakh then no tax is applicable.
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But if it's more than Rs 1 Lakh,
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then tax will be applied to whatever amount which is more than Rs 1 Lakh.
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That will depend on whether short-term capital gain tax is applied
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or long-term is applied.
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If we sold out investment before 1 year then short-term capital tax will be applied.
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At the rate of 15%.
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And if we sold that investment after one year then our tax rate will be 10%.
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We don't get Indexation benefits in this case.
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Now let's talk about Debt ETF, so Debt ETF and Gold ETF are treated the same way.
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This means if we sold any investment before 3 years,
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then short term capital gain tax will be applied or after 3 years
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then long-term capital gain tax will be applicable.
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How much is the short-term tax rate?
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All the profit that you get will be added to your income,
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so suppose your income tax slab is 20% then you
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will be taxed 20%.
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Long term capital gains tax is 20 % here,
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which means whenever you sell the investment after 3 year
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then you are taxed 20% capital gains tax.
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But here you get Indexation benefits.
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Then the question arises why should we invest in ETF?
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The first reason for this is, the cost here is very low.
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Here cost starts from 0.01%, we saw in case of Index Funds,
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the lowest cost was 0.05%.
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Now because the cost is so less, obviously our return gets better.
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In mutual funds
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if the average cost is of 1%- 1.5%,
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So directly that is added to your returns.
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Because in long term this 1% also have a big effect.
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Third, we can buy/sell it anytime.
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A lot of people also trade in ETFs.
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And here you can also put multiple orders,
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like when you buy a stock you can put a limit order, stop-loss order.
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So these things are also possible in ETF.
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But along with that, there are also some limitations of ETF.
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Here the first limitation is, here trading cost also gets involved.
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Like in the case of stocks, here Securities Transaction Tax (STT) is also applied.
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The second minimal fee of the Exchange Turnover fee is also applied.
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But when you invest a lot of amounts, these costs are negligible.
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The second limitation of ETF is very important.
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That is liquidity.
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In today's date, there is not that type of liquidity, the way there is
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in mature markets like the USA.
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Although this improved a lot in past 4-5 years.
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But whenever you are investing in ETF,
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surely see its daily traded volume.
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And see of last 3-4 month or a year.
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does it get regularly traded or not.
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Because suppose you bought an ETF and couldn't sell it,
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i.e., suppose there is not much liquidity in it.
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Then you won't be able to exit.
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So this could be an issue in some ETFs.
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Now let's talk about Tracking errors.
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This we explain in detail, in the Index fund video, so do watch it.
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Then also if we broadly summarize this,
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so tracking error is,
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how much any ETF is deviating from the return given by Index fund,
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that we measure with Tracking error.
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But whichever ETF will have the least deviation,
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means the smallest tracking error,
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that would be a little better.
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If you have tracking error data available to you, so do check it.
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So now the final question arises, how to invest in ETFs?
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First of all, we should keep in mind 3 things.
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First,
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first of all, we should check the Expense Ratio.
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the low, the better it will be.
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Second, if tracking error of an ETF is available we should check it, and in fact
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if a comparison is available to use, we should surely check that.
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Third and very very important, we should check liquidity
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that is how much is daily traded volume.
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You should ideally see more than a thousand
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daily, more than a thousand units should be in trade.
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So to invest in ETF, you can log in to your Demat account,
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I have logged in to my Zerodha means already logged into the kite app.
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If you want to open an account under Zerodha,
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So I have given a link in the description box below, you can open it.
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First, we will go to search and directly type ETF and see,
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see here you can see different types of ETFs here.
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There are Birla Sunlife, Axis
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here like you can Axis Gold an ETF,
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when you scroll down you can see ETF named BankBEES.
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So this as I discussed with you is of Nippon India.
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You can see, different types of ETFs are visible to you,
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CPSE ETF that we talked about, you can also see that here.
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If you directly want to invest in a specific ETF,
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if you know the name you search that directly as well.
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So suppose we want to invest in BankBEES so I will click on it,
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and see you can directly buy or sell it.
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Below you can also see quantities, that how much of its volume is being traded.
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So here you can see liquidity is very good, a good amount of volume is being traded.
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So suppose if I want to invest in it, I will click on buy, and here I will put quantity.
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And here either Intraday, if I want to buy and sell at the same day
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then I will go with Intraday otherwise if I want to invest for the long term,
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I will go on the long term.
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Here see I can put market order, limit order or stop loss order as well.
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Like in fact we talked about all these orders in our tutorial video.
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You can also check out that video.
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So this is a way when we can directly invest in ETF through our Demat account.
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But suppose we don't know what ETF should we buy?
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We want to get some expert guidance.
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So we can also buy it through Small case, in Small case
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you get ready-made portfolios.
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There are many small cases in there which invest in ETF. Some money they
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will invest in Nifty ETF, some money they,
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will invest in Gold ETF, some in Debt ETF.
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So you get this type of ready-made strategies, you can check those out too,
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I have also the link for that down below.
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So whenever you are investing in ETF, there is no minimum amount here,
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minimum amount is just whatever the price of a single unit,
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that is your minimum amount.
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So you can start from a very less amount too.
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So this was our detailed guide on ETF,
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I am sure you must have learned something new from this video.
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If this is the case, then do share this video with your friends and family members.
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So that they also get something new to learn.
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And If you haven't subscribed to this channel yet,
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then subscribe to it from down below and press the bell icon
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so you get the notification of the latest finance video.
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So, let's meet in another informative video like this,
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Till then keep learning, keep earning, and stay happy as always.
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