Last month, when I was trying to optimize my margin requirement for options trading, I stumbled upon the Nifty BeES. I was looking for an option that would provide me with a cash equivalent margin on pledging.
As per regulation, 50% of the total required margin could be fulfilled from collateral equity margin and the remaining 50% had to come in the form of cash or cash equivalents margin.
I pledged my ITC stocks to meet my equity margin requirements.
But I was not sure which option was the right one between Nifty BeES and Liquid BeES to generate the cash equivalent margin. So, I decided to invest 50k each in Nifty BeES and Liquid BeES to see if either of them could fulfill my cash equivalent margin requirements.
I found Nifty BeES pledge provides the collateral equity margin while the Liquid BeES pledge provides the cash equivalent margin. I liquidate my Nifty bees investment and invest in the liquid bees.
During my research, I realized Nifty bees is a good investment option to invest in to replicate the performance of the Nifty 50 index.
In this article, I am going to share my finding on how to invest in nifty bees.
What is Nifty Bees
Nifty Bees are Exchange Traded Funds (ETFs) that are listed on the National Stock Exchange of India (NSE). They are passive funds that track the performance of the Nifty 50 Index, which is made up of 50 of the largest and most liquid stocks in India. The Nifty 50 Index represents around 65% of the total market capitalization of the NSE.
How Nifty Bees Work
Nifty Bees track the performance of the Nifty 50 Index. When you invest in Nifty Bees, you are investing in a portfolio of stocks that make up the Nifty 50 Index. The fund manager of Nifty Bees buys and holds the stocks in the same proportion as the index. The objective of Nifty Bees is to provide you with returns that closely track the performance of the Nifty 50 Index.
The Nifty 50 Index is calculated based on the free float market capitalization of the stocks in the index. The index only takes the shares that are available for trading in the market. The Nifty 50 Index is rebalanced twice a year, in March and September. The stocks in the index are reviewed based on their liquidity, market capitalization, and other factors.
Nifty Bees provides you exposure to a diversified portfolio of stocks at a low cost. You can buy and sell Nifty Bees on the stock exchange, just like individual stocks. The value of Nifty Bees is based on the net asset value (NAV) of the underlying assets. The price of Nifty Bees will move up and down with the value of the Nifty 50 Index.
The price of one unit of Nifty Bees is approximately equal to 1/100th of the value of the Nifty 50 index. For example, as on 31st March 2023, the Nifty 50 index is traded at 17250 levels and the price of Nippon India Nifty 50 BeES is Rs 188.5 per unit.
Difference Between the Nifty Bees And Nifty Index Funds
Both Nifty Bees and Nifty index funds track the performance of the Nifty 50 index, but they have some fundamental differences.
Nifty Bees are exchange-traded funds (ETFs) that are listed and traded on the stock exchange, while Nifty index funds are mutual funds that are managed by fund managers.
Nifty Bees are passively managed, which means that they aim to replicate the performance of the Nifty 50 index by investing in the same stocks in the same proportion as the index. The objective of Nifty Bees is to provide you with a low-cost, diversified investment option that tracks the performance of the Nifty 50 index.
On the other hand, Nifty index funds are actively managed by fund managers who aim to outperform the Nifty 50 index by making active investment decisions. Fund managers use their expertise to select stocks that they believe will perform better than the stocks in the index.
Nifty Bees have lower expense ratios compared to Nifty index funds, as they have lower management fees and are passively managed. Nifty index funds, on the other hand, have higher expense ratios due to their active management and higher management fees.
|Particulars||Nifty Bees||Nifty Index Funds|
|Investment class||ETF||Mutual funds|
|Objective||Replicate the performance of the Nifty 50||Outperform the Nifty 50 index|
|Trade||Stock exchange||Fund house|
You can also read the comparison of Nifty Bees vs Liquid Bees to understand how both differ for an investor.
Features of Nifty Bees
- Low Cost: Nifty Bees have a lower expense ratio compared to actively managed mutual funds. You can save on the management fees and other expenses associated with actively managed mutual funds.
- Diversification: Nifty Bees provide investors with exposure to a diversified portfolio of stocks. You can spread your risk across multiple companies and sectors.
- Transparency: Nifty Bees are listed on the stock exchange, which means that their prices are transparent and can be tracked in real-time.
- Flexibility: Nifty Bees can be bought and sold on the stock exchange, just like individual stocks. You can easily enter and exit their positions in Nifty Bees.
Step-by-Step Process to Invest in Nifty Bees
Here’s a step-by-step guide on how to invest in Nifty Bees:
Step 1 – Open a Demat and Trading Account
You need a Demat and trading account to invest in Nifty Bees. You can check the step-by-step process to open a Zerodha account.
If you already have a Demat account then proceed to the next step.
Step 2 – Login Into your Demat Account using your user ID and password.
Step 3 – Transfer Funds to Your Trading Account
Transfer the funds to your trading account that you want to invest in the Nifty bees. You can add the funds through net banking, debit card, or UPI. Stockbrokers charge a fix to add funds using Net banking whereas UPI is free. Check your Zerodha’s charges on adding funds.
Step 4 – Search for Nifty Bees
Search nifty bees on your broker’s platform. You can search using the ticker symbol, “NIFTYBEES”.
Step 5 – Click on the “Buy” button to place the order
Now specify the Nifty Bees quantity that you want to buy and the price you are willing to pay. You can also place a market order to buy the Nifty Bees to buy at the current market price. Click on “Buy” again.
You can monitor the performance under the holding section on your trading platform. You can track the performance of Nifty Bees and the Nifty 50 Index to see how your investment is doing.
How to Sell Nifty Bees
Step 1 – Log in to your trading account.
Step 2 – Go to the ‘Holdings’ section and select the Nifty Bees you want to sell.
Step 3 – Click on the ‘sell’ button to initiate the sell order.
Step 4 – Enter the quantity of Nifty Bees you want to sell and the price at which you want to sell them. You can choose to sell at the market price or set a limit order.
Step 5 – Review the details of your sell order and click on the “Sell” button.
Tax Implication On Nifty Bees
- Short-term capital gains tax – If you sell your Nifty Bees within one year of purchase, the gains are considered short-term capital gains (STCG). A fixed 15% income tax is charged on the STCG irrespective of your income slabs.
- Long-term capital gains tax – If you sell your Nifty Bees after one year of purchase, the gains are considered long-term capital gains (LTCG). Long-term capital gain amount of up to INR 1 lakh is tax-deductible, and a tax of 10% would be levied on amounts greater than 1 lakh.
- Dividend distribution tax – The dividend that you earn by investing in independent stocks is also applicable for nifty bees. The dividend income from Nifty Bees is added to annual income and is taxed as per your tax slab.
Alternative to Nifty Bees
You can invest in index mutual funds or direct stocks in the same ratio as the Nifty index
Index mutual funds: Index mutual funds track the performance of a particular index, such as Nifty 50 or BSE Sensex. They are similar to Nifty Bees in that they provide diversified exposure to a broad range of stocks, but they are managed by fund managers, and the expense ratio may be higher than Nifty Bees.
Direct Stocks: You can invest in individual stocks included in the Nifty 50 index. You need to do some research and analysis of individual stocks which is a time-consuming task. It is suitable for investors who have the knowledge and experience to select and manage their stock portfolio.
Q1. What are Nifty Bees?
Nifty Bees are exchange-traded funds (ETFs) that track the performance of the Nifty 50 index. They are listed and traded on the National Stock Exchange (NSE) of India.
Q2. What is the minimum investment amount for Nifty Bees?
The minimum investment amount for Nifty Bees is one unit, which is currently priced at around Rs. 190. However, the minimum investment amount may vary depending on the stockbroker you choose.
Q3. Can I sell my Nifty Bees at any time?
Yes, you can sell your Nifty Bees at any time during market hours when the stock exchange is open. You can place a sell order on your trading platform and the Nifty Bees will be sold at the prevailing market price.
Q4. Are Nifty Bees a good investment option for beginners?
Yes, Nifty Bees can be a good investment option for beginners as they provide exposure to a diversified portfolio of stocks at a low cost. They are also easy to buy and sell on the stock exchange, which makes them a convenient investment option.
Q5. What is the expense ratio of Nifty Bees?
The expense ratio of Nifty Bees is currently around 0.05%, which is significantly lower than the expense ratio of actively managed mutual funds.
Q6. Can I invest in Nifty Bees through SIP?
Yes, you can invest in Nifty Bees through SIP (Systematic Investment Plan). You can invest a fixed amount of money at regular intervals, such as monthly or quarterly.
Q7. How are Nifty Bees different from mutual funds?
Nifty Bees are exchange-traded funds that can be bought and sold on the stock exchange like a stock, whereas mutual funds are professionally managed investment funds that pool money from multiple investors to invest in various securities.
Q8. How are Nifty Bees priced?
Nifty Bees are priced based on the value of the Nifty 50 index. The price of one unit of Nifty Bees is approximately equal to 1/100th of the value of the Nifty 50 index.
Q9. Can I buy Nifty Bees offline?
Yes, you can buy Nifty Bees offline by visiting the broker’s office. You will need to provide your personal and financial details, as well as your KYC documents.
Q10. How can I monitor my Nifty Bees investment?
Once you have bought Nifty Bees, you can monitor your investment on your trading platform. You can track the performance of Nifty Bees and the Nifty 50 Index to see how your investment is doing.
Q11. Can NRI invest in Nifty Bees?
Yes, NRIs (Non-Resident Indians) can invest in Nifty Bees. However, they need to have an NRE or NRO bank account to invest in them.
Q12. How can I redeem my Nifty Bees investment?
To redeem your Nifty Bees investment, you can place a sell order on your trading platform during market hours. Once the sell order is executed, the funds will be credited to your trading account.
Q13. Can I hold Nifty Bees in my demat account?
Yes, Nifty Bees can be held in a demat account just like stocks. When you buy Nifty Bees, they are credited to your demat account, and when you sell them, they are debited from your demat account.
If you are new to stock investing and seeking to replicate the Nifty 50 index’s performance, Nifty bees is an excellent choice.
If you can analyze stocks fundamentally and technically, I would recommend investing in individual stocks. Although the risks are comparable same in both cases, investing in individual stocks may yield higher returns than Nifty bees.