»Fast Profits Daily by Equitymaster

On This Day - 14 JANUARY 2021
The Best Nifty, Sensex, and Bank Nifty ETFs

Vijay Bhambwani, Editor, Fast Profits Daily

I always ask my viewers to send in requests for videos.

The one topic that's regularly at the top of the requests is the best ETFs in the market.

I've done a video on my top 5 gold ETFs. That video has been quite popular.

In this video, I'll cover the Nifty, the Sensex, and the Bank Nifty.

I'll share my top 3 Nifty and Sensex ETFs as well as my number one Bank Nifty ETF.

So which ETFs are the best? Watch the video to find out...

...and keep sending me your requests for more videos.

Hi, this is Vijay Bhambwani. In this video, I am going to talk about ETFs, Exchange Traded Funds. The one that I promised you, I would make.

But this time, instead of gold ETFs, I am going to talk about Index ETFs. So I am going to talk about Bank Nifty ETFs. I am going to talk about the Nifty 50 ETFs and surprise, surprise the BSE Sensex ETFs.

Now what are ETFs?

They are nothing but deliverable, by deliverable I mean electronically demat account deliverable, ETFs are nothing but electronically deliverable index units which you will get in your demat account exactly like shares.


Being deliverable units of the indices, the ETF fund manager will hold each stock of that respective index in exactly the same proportion as it is weighted in the index. So each portfolio will mirror the others for the simple reason that they all, for example, if it is a Nifty 50 ETF, they will all be holding those same 50 shares in that same proportion. The only thing is execution costs, timing of re-jigging the portfolio will basically differ.

Now the reason why these ETFs do well is because they are passive in nature. Index funds, any mutual fund investor will know this immediately and off the hook, index funds are passive in nature. They basically buy the stocks in the same proportion as the index that they are investing in or trying to mirror the performance of, and unless the constitution of the index changes, the fund manager does not re-jig or buy and sell or shuffle the portfolio.

This is why their execution costs are absolutely low compared to active funds like equity funds, small cap, large cap midcap funds, etc where the fund manager is constantly buying and selling, paying brokerage, administrative expenses, custodial charges, etc.

Now, these ETFs therefore, tend to largely have performance, which is very similar to each other, with slight variation. Now, between the ETFs, there are three things you can do. Number one choose the best sector, either the Sensex, the Nifty, or the Bank Nifty. Once you choose the sector, you basically choose that top three ETFs within the sector.

You can basically do a mix and match. If you're somebody who believes in asset allocation, you might want to keep your feet in both the categories, the bank ETF as well as the frontline ETF, the Nifty 50 or the BSE Sensex or hey, even both.

Now, to learn more about these ETFs I would strongly suggest, you read this wonderful book. It's titled Outpacing the Pros. It's written by David M. Blitzer. It's a low cost book. It's a fantastic book about how to beat professional investors by investing in index funds.

For cross referencing, I would strongly suggest you scroll back or scroll down in this playlist rather and go back to my video dated 4th of January 2021 this very year, a little more than a week ago. The title of that video is Index or Stocks: Where Should You Invest?

In that particular video, I have elaborated why indices in India either resist falling or when they fall, they fall less than stocks because the constituent shares' weightages keep changing as per the free float method and when the stock price of a weighted stock in the index falls, it's weighted also comes down. So the fall, or the blow on to the index, is therefore muted.

Now I hope I have convinced you that ETFs are making eminent common sense as compared to buying futures in the Nifty or in the Bank Nifty and then rolling over these futures expiry after expiry, in order to take a longer term view on that respective index.

You see, you will keep on paying recurring charges and probably, depending on what the prevalent situation at that time, you will wind up paying anything between 9% to 15% rollover charges per annum if you were to take a buy and hold approach or a patient buying approach on the Nifty or of the Bank Nifty. I think if you're taking a longer term approach, it is better to take delivery via these ETFs.

First of all, the primary observation that I made was when I checked out the Nifty Bank ETFs or even the banking ETFs, their one year returns, I'm basically grading them as per one, two, and three year returns.

Secondly, liquidity in the market. Thirdly, of course, not necessarily in that order of preference, the promoter. We need good, solid promoters who can basically deliver the goods.

So the Bank Nifty, in fact all the banking ETFs, I've realised, was have had a very, very rough time in the last 12 months, in the trailing 12 months but the two and three year period returns were ranging between 7.5 to 7.85%.

Now the problem is that after taking the effort of investing into something that keeps going up and down and is going to cause you some amount of anxiety, how much are you exactly getting more than a bank fixed deposit by deploying your money at 7.5%? Not much.

So, if you're one of those investors who like to re-jig their portfolio or possibly keep asset allocation wherein you have to invest in every sector or as many sectors as possible, then probably you have no choice and you might want to deploy some money in the Nifty or Bank Nifty ETFs.

I would suggest you look at Nippon Bank BeEs. It's highly liquid, relatively low impact cost, and basically entry and exit tends to be therefore relatively easier.

Now coming to the Nifty ETF's. I've basically found there to be a lot of ETFs available out there, but surprisingly, and this should actually come as no surprise because since the last couple of months I have been waxing eloquent about the virtues of investing in PSU stocks.

So now you will see from this list that the PSUs, government sponsored the companies that are offering you ETFs of the Nifty 50 are actually outperforming many of their private sector peers by a decent margin.

Now do remember that the Nifty is a passive ETF and therefore the difference between the top and the lower ended ETF, in percentage terms, is not going to be all that great but hey, every basis point counts and therefore we are going to go for it.

Now, based on one year returns, I found the LIC mutual fund Nifty 50 ETF to be number one because it returned 19.7%. Number two, Nippon Nifty 50 or Nifty BeEs, which returned 19.54%. Number three SBI Nifty 50 ETF, which returned 19.48%.

The others are basically below 19%, so I'm leaving them out. So clearly my choice at number one for Nifty 50 ETF would be LIC mutual fund Nifty 50 ETF. Number two would be Nippon. Number three would be SBI.

So two PSUs. One private sector. Now where volumes are concerned, traded volumes are obviously the most liquid in Nippon Nifty BeEs and then you have SBI and LIC mutual fund, respectively. Getting in and getting out should not be much of a problem, but I do know that the last two or three trading sessions and this is something that I found peculiar, the volatility in the Nifty 50 ETF was far higher than the Nifty spot or the Nifty future.

So keeping limit orders when you are buying ETFs, now obviously, it is a deliverable instrument, so you can't short sell it. So the only advice is to buy. Of course, you'll have to time the entry and exits yourself. The point I'm trying to make is that do not enter market orders. Always stick to your limit because the volatility, especially in the last two, three days, is mind boggling. It's 2 or 2.5 times more than the spot or the futures.

Now coming to the surprise entrant in this list is the Sensex ETF. Although technically speaking, the Sensex is just like any other index, the Nifty or the Bank Nifty or any other index like I said, the returns offered by this ETF over the last one year, two year and three year period is higher than the Nifty 50 or the Bank Nifty ETF.

Bank Nifty ETF like a very point blank told you has been terrible. One year returns have been a pathetic negative, and two and three year returns were ranging between 7.5 to 7.85%.

But take a look at what the Sensex ETF is giving you. Now, here again, I noticed a lot of public sector Sensex ETFs, which are being extremely, well, fairly liquid, and they are also surpassing their private sector peers in returns.

Now, I am depending heavily on the one year returns because of the recency bias. Obviously, the kind of returns that were made over the last one year seems to reflect the investment or trading style of the fund manager the most because it's the most recent and secondly, the reason why I am giving a higher weightage to one-year returns is if a fund manager is underperforming his peers in this kind of a market, maybe he is not able to or she is not able to ride the momentum properly.

So I am ranking SBI Sensex ETF at number one. Very close second, UTI Sensex ETF. Both have returned 20.18% over the last one year with SBI giving 18.48% over two years and UTI Sensex ETF giving 18.5% percent over two years, almost mirroring each other, almost mirroring each other.

Now at a close, number two is LIC Sensex ETF, which has returned 20.15% in a one year period. Of course there are others. You have the HDFC Sensex ETF which returned 20.10% and Nippon Sensex ETF which returned 20.7%.

So you see, we were looking at ETFs in the Nifty and the Bank Nifty but surprise, surprise, came the BSE Sensex ETFs also. There are, of course, other ETFs like consumption ETF. There is the CPSE. Unfortunately, the problem lies in the liquidity, traded volumes, impact costs, which is the difference between buy and sell and the difference between the first lot, 2nd, and 3rd lot. The price gap between them is so wide that you'll wind up paying a lot in the execution, cost, commissions, and taxes itself.

So, friends, I hope this answers your query about which Nifty or Bank Nifty or now the Sensex ETF is good for trading. I hope you're absolutely satisfied and this video answers your queries. I'll, of course, be coming out with more videos in the near future. My budget series videos are definitely on. I hope you are able to make good money before and after the budget through these videos.

On this cheerful note, I'll bid goodbye to you not before reminding you to click like on this video if you're watching it on YouTube. Do click on the bell icon to receive instant alerts for fresh videos uploaded on this channel and subscribe to my YouTube channel if you haven't already done so. In the comments section, do let me know what you think about this video and what you would want me to record in my next. Also help me reach out to fellow like-minded traders who are interested in knowledge based investments and trades by referring my video to your family and friends.

Do take very good care of health, your investments, your family, and friends. Have a very, very profitable day ahead. Vijay Bhambwani signing off for now. Thank you for watching me. Bye.

Warm regards,

Vijay L Bhambwani
Vijay L Bhambwani
Editor, Fast Profits Daily
Equitymaster Agora Research Private Limited (Research Analyst)

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