The portfolio will consist of 10 large capitalised stocks which reflect the behaviour and performance of the private sector banks.
Country’s leading fund-house ICICI Prudential AMC is launching ICICI Prudential Private Banks ETF. The exchange-traded fund (ETF) will be open for investments from August 1 and the new fund offer period will close on August 6. This product is an open-ended ETF replicating/tracking Nifty Private Bank Index. The portfolio will consist of 10 large capitalised stocks which reflect the behaviour and performance of the private sector banks. If the timing is right, investors may experience a good return experience as private sector banks are poised to grow faster than growth in nominal GDP of the country. Read on to know more.
ETFs are generally passively managed mutual fund schemes tracking a benchmark index and reflect the performance of that index. The benefits offered by ETFs include lower cost as compared to actively managed mutual fund schemes, diversification benefit, trades at real-time NAV, transparency in holdings and price, and adequate liquidity with AMC and on the stock exchange.
The ETF will track the Nifty Private Bank index. Do note the name of the ETF is ICICI Prudential Private Banks ETF. The index represents the 10 large capitalized stocks which reflect the behavior and performance of the private sector banks. These top private-sector lenders may grow faster than growth in Nominal GDP of the country as market share of private sector banks rises due to easier access to capital. Private sector banks are known for good asset-liability management, high CASA (Current And Savings Account) franchise and broad-based financial services presence.
The index looks very concentrated. Five stocks i.e. HDFC Bank Ltd., ICICI Bank Ltd., Kotak Mahindra Bank Ltd., Axis Bank Ltd. and IndusInd Bank Ltd. have 70% total allocation. This will make the ETF highly concentrated.
Here are the constituent and their individual weight in the index.
As per ICICI Prudential, as the economy grows, banks tend to grow along with the economy. The current phase of consolidation in banks makes it a good investment opportunity. There is evidence of outperformance against broader market indices over the period of time.
While most of the private banks are part of the Nifty 50 index, the ICICI Prudential Private Banks ETF provides a more focussed investment vehicle. By investing in this ETF, you have access to invest in major banks with a minimum investment of 1 unit on the exchange.
Take a look at the past performance of the index.
NFO Period – August 01, 2019 to August 06, 2019
MICR Cheques – Till end of business hours on August 06, 2019
RTGS and transfer cheques – Till end of business hours on August 06, 2019
Switches – Are not allowed
Min. Application amt. during the NFO – Rs. 5,000/- (plus in multiple of Re.1 thereafter)
Benchmark – Nifty Private Bank Index
Fund Manager – Kayzad Eghlim
Basket size – 15,000 units. (Approx Rs.24,45,000)
Listing – Units will be listed on NSE & BSE.
In the short run, history has shown that the Nifty Private Bank Index can be volatile. In rising market situations, Nifty Private Bank index may outperform the broader market indices. During a falling market scenario, Nifty Private Bank index has fallen less in comparison to broad market indices. If you are planning to buy ICICI Prudential Private Banks ETF, you have to be long-term as the Nifty Private Bank index captures the GDP growth of the country due to it being a recipient of benefit from all sectors of the economy. In fact, Nifty Private Bank Index has convincingly outperformed broader market indices over the long run. From an index creation of point of view, these 10 stocks are more or less the companies that enjoy a lot of confidence.
We do have to tell you that many years ago fund-houses launched PSU bank ETFs i.e. Reliance ETF PSU Bank BeES and Kotak PSU Bank ETF. PSU banks have not done well, at least in the last 12 months. The thing about taking concentrated bets on stocks inside a sector means that the timing of entry becomes crucial. If the timing is wrong, you could be required to be very patient before you see good returns.
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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