IIFL Nifty ETF Review

by Manshu on October 5, 2011

in Investments

India Infoline is going to launch a Nifty ETF soon, and the NFO has opened on the September 28 2011, and will close on the October 12 2011.

This is going to be the 14th Nifty Index fund (I have a list of 13 other Nifty Index funds and ETFs here), and to compete in such a crowded space – India Infoline has come up with the lowest expenses of any ETF so far.

The IIFL Nifty ETF will charge 0.25% expenses which is lower than the 0.50% currently charged by the Benchmark Nifty ETF.

This is great because the expenses charged by the sponsor or mutual fund eats into the returns of the mutual fund / ETF, so the lower the expenses – the better it is.

It will be like other Nifty ETFs in all other respects meaning it will own stocks in the same composition as the S&P CNX Nifty and try to track the performance of the Nifty as best as it can.

There will always be some difference between the performance of an index fund or an index ETF and the underlying index (usually the fund under-performing the index) because of expenses, and the fact that the fund can’t own 100% of the underlying asset, and has to put aside some money for redemption, and expenses etc. Kiran had done a pretty detailed analysis of this phenomenon some time ago, and I recommend reading that.

There is no need to buy the IIFL Nifty ETF in the NFO period since you don’t get any benefit of investing in ETFs or mutual funds in that period, and it’s much better to buy it after it has listed and has been around for some time.

I would say that you need to wait a little while before investing in this even after listing because you want to make sure that there are good volumes in the IIFL Nifty ETF, and you don’t get stuck in an illiquid ETF of liquid underlying. I see that the Nifty BeeS which has expenses of 0.50% has about Rs. 650 crores under management, so I would personally feel comfortable investing in IIFL Nifty ETF only if it managed to reach at least a third of that amount, and until then pay a little extra to hold the bigger fund.

Since this is a fairly straight forward product I can’t think of including any more details, so please leave a comment with any questions or thoughts you have, and I will respond to them.

{ 11 comments… read them below or add one }

ClickInsurance.co.in October 5, 2011 at 11:57 pm

It is worthwhile considering the risks associated with IIFL Nifty ETF as well, before investing. The benchmark for IIFL Nifty ETF Fund is the S&P Nifty 50 Index. By investing in such a fund, you are taking the risk on overall Indian Markets, as included the 50 shares of Nifty 50. If the Nifty fluctuates, so will the returns generated from this fund will keep fluctuating in either direction. But overall, the index based index funds and ETF’s are learnt to have
outperformed the rest of the mutual funds in better probability.

Reply

Raja October 6, 2011 at 6:15 pm

Hi Manshu,

I have one doubt. Do you know what happens to the dividend that these ETF’s get from the NIFTY companies which they hold ?
I don’t think they are shared with the unit holders. And the unit price tracks the nifty too closely to believe that the dividends are invested back in the scheme.

Regards
Raja

Reply

Manshu October 6, 2011 at 7:23 pm

Hi Raja,

Yeah – the ETFs do pay out dividends, and here is the link to the GS Nifty ETF that shows how much dividend it has paid over the years.

http://www.benchmarkfunds.com/Products/NiftyBeES/CorporateAction.aspx

Reply

Ashok October 6, 2011 at 7:49 pm

I had the same question. Raja, Thanks for asking, and thanks for the answer, Manshu.

But I hope Benchmark/GS Nifty ETFs declares dividends more often.

Reply

Sridhar October 13, 2011 at 4:13 pm

When is IIFL Nifty ETF getting listed? Any idea.
We should have some discussion on this after listing about the price, volumes, etc.

I think GS (Benchmark) Nifty ETF is the best among all index ETFs. There are only about 5 or so index ETFs in India, but most volumes are garnered by GS Nifty ETF.
If you have read some articles by experts from Benchmark MF and others about ETF you will realize that investing in index ETF is the most boring strategy, but the risks are minimal and you will get moderate returns based on index performance. Passive investing through index ETF has delivered more returns than majority of the equity mutual funds. So for investors who are looking for a simple investment vehicle, Nifty ETF is the cheapest option providing consistent returns, with reasonable risk.

Reply

Manshu October 14, 2011 at 8:21 pm

I’m not aware of that – there are more than 15 nifty index MFs and ETFs, and here is a post I recently did with their volumes, expense ratios and returns – basically everything you touch upon.

http://www.onemint.com/2011/10/11/comprehensive-list-of-nifty-index-funds-and-etfs/

Reply

I KONDALA RAO October 18, 2011 at 11:23 am

I have applied for Nifty ETF for a value of Rs.500/- on 11-10-2011. When I will be allotted my units. What is the present position of Nifty ETF

Reply

Manshu October 18, 2011 at 10:57 pm

You should talk to your agent.

Reply

Kam November 24, 2011 at 3:54 pm

Hi,

Is there an IIFL site which provides realtime NAV for IIFLNIFTY ETF during market hours?
Benchmark site provides NAV for all its ETF and so does Motilal Oswal but couldn’t locate one for IIFL.

Reply

Manshu November 24, 2011 at 8:34 pm
Kam November 25, 2011 at 11:17 am

Thanks man!

Reply

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