The offer will close on July 8; it will be an open-ended ETF tracking the Nifty Bank Index
ICICI Prudential Mutual Fund is launching a new fund offer (NFO) focused on the banking sector named ICICI Prudential Bank ETF. The issue will open from July 3 and will close on July 8. The ETF will be an open-ended ETF tracking the Nifty Bank Index. Let us find out more. Read on.
ETFs are passively managed mutual fund schemes tracking a benchmark index and reflect the performance of that index. Sharing the best of both worlds of a stock and an index fund, ETFs deliver many benefits such as low cost (compared to actively managed mutual funds), trading at real-time NAV (brings transparency in holdings), portfolio diversification, and opportunity for periodic portfolio rebalancing.
Indian ETF industry has seen rapid growth in the last three years. Recent investments in ETFs comprise EPFO’s apex decision to increase investments in equity ETFs to 15% of the investible deposits. The major contribution towards AUM of ETFs is by EPFO.
Banking is the lifeline of any modern economy. Banking stocks are the dominant sector of broad market indices. While banks are most susceptible to the ups and downs in the economy given the leverage and nature of the business, it is natural that value investors are drawn to this sector. The idea is to select a good portfolio of stocks.
Nifty Bank Index constituents include HDFC Bank Ltd. 34%, ICICI Bank Ltd. 18%, Kotak Mahindra Bank Ltd. 13%, Axis Bank Ltd. 12%, State Bank Of India 10%, IndusInd Bank Ltd. 6%, RBL Bank Ltd. 2%, Federal Bank Ltd. 2%, Yes Bank Ltd. 2%, Bank Of Baroda 1%, IDFC First Bank Ltd. 1% and Punjab National Bank 1%. This index represents the 12 most liquid and large capitalised stocks from the banking sector which trade on the respective exchanges.
The Nifty Bank Index provides a benchmark that captures the capital market performance of Indian banks. Also, it trades in the Futures and Options market, providing adequate liquidity in the market.
In the short run, the Nifty Bank Index can be volatile. So, an ETF tracking the index would exhibit the same. In rising market situations, the Nifty Bank index may outperform the broader market indices. Similarly, during a falling market scenario, the Nifty Bank index may fall more than broad market indices
However, over a longer period of time, Nifty Bank index has captured the GDP growth of the country due to it being the recipient of benefit from all sectors of the economy, says ICICI Prudential MF.
According to data, the Nifty Bank Index has consistently offered higher risk-adjusted returns compared to Nifty 50 Index and Nifty 500 Index over various time periods.
Also, the Nifty Bank Index (Total Return Index) has generated 15.8% CAGR over the last 5-year period, beating all other sectoral indices including IT, and FMCG.
Fund manager – Kayzad Eghlim
Minimum investment – Rs 5,000
Listing of units – NSE and BSE
Take a look below to understand how banking ETF peers have done performance wise. PSU bank ETFs have done poorly in the 1, 3 and 5 year periods. Private sector bank ETFs have done much better.
|Fund||1-Year Return||3-Year Return||5-Year Return|
|Edelweiss Exchange Traded Fund-Nifty Bank||14.72||19.37||–|
|Kotak Banking ETF Fund||14.54||19.25||–|
|Kotak PSU Bank ETF||3.64||6.12||-3.81|
|Reliance ETF Bank BeES||14.62||19.19||14.77|
|Reliance ETF PSU Bank BeES||3.91||6.95||-2.47|
|SBI ETF Nifty Bank Fund||14.63||18.72||–|
|* Up to June 28, 2019; Source: RupeeIQ|
RupeeIQ take – After a solid run, currently banks are in a consolidation phase. So, regular investments in banking ETFs may give you a good opportunity to invest at current levels. The banking sector will always show outperformance against broader market indices and sectoral indices over the period of time due to high beta. The best part of products like ICICI Prudential Bank ETF is that they allow you to invest in major banks with a minimum investment of 1 unit on the exchange. As an investor, if an ETF delivers similar return but at a lower cost, as compared to actively managed mutual fund scheme, it is a great investment opportunity for you.
Disclaimer: The article is only for informational purposes. Investors are requested to consult their financial, tax and other advisors before taking any investment decision.
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