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.