SBI ETF Nifty 50 Fund.
The SBI Mutual Fund House is the owner of the open-ended large-cap equity SBI ETF Nifty 50 Fund.
On July 20, 2015, the fund was introduced.
The SBI ETF Nifty 50 Fund is an index for India that is a market capitalization-weighted and includes 50 stocks. Index-based derivatives, benchmarking fund portfolios, and index funds are only a few uses for it.
For people interested in trading and investing in Indian equities, the NIFTY 50 was developed using academic analysis.
About 66 percent of the National Stock Exchange’s adjusted market capitalization is made up of the NIFTY 50 stocks (NSE).
Representation of turnover.
About 54 percent of the National Stock Exchange’s adjusted market capitalization is made up of the NIFTY 50 stocks (NSE).
Nifty 50 methodologies.
The market capitalization-weighted; a float-adjusted technique used to calculate the Nifty 50 Index results in an index level that reflects the aggregate market value of all the stocks included in the index relative to a given base period.
The technique also accounts for business actions and changes to the index’s constituents without changing the index’s value.
The float-adjusted market capitalization-weighted technique, which is being used to calculate the Nifty 50 as of June 26, 2009, represents the market capitalization of all the stocks included in the Index at the index’s level.
SECTOR: ETF | BSE: 590138 | NSE: SETFNIF50
SBI ETF Nifty 50 share prices are unstable and continually alter based on market conditions. The SBI ETF Nifty 50’s closing price was 163.17 as of Jun. 27, 2022, 04:01 PM.
Outlines of the Fund.
As of 24 June 2022, the SBI ETF Nifty 50’s current net asset value (SBI ETF Nifty 50 Fund NAV) for the IDCW option of its Regular plan is Rs 161.5028.
Returns: Its trailing returns are 0.66 percent (1 year), 11.15 percent (3 years), 11.61 percent (5 years), and 10.44 percent (since launch). While category returns for the same period are -0.79% (1 year), 10.74% (3 years), and 10.27%. (5yr).
As of May 31, 2022, the SBI ETF Nifty 50 had assets under management computing Rs. 128116.74 crore.
Expense ratio: As of March 31, 2022, the SBI ETF Nifty 50 Fund expense ratio of the fund for the Regular plan is 0.07 percent.
Exit Load: There is no exit load for the given fund.
Minimum Investment: Rs. 5000 is the absolute lowest investment needed, and Rs. 0 is the absolute minimum extra investment. The SIP investment minimum is Rs 0.
Investors looking for long-term capital growth might consider this product.
The Nifty 50 Index includes securities investment.
Investment goal and benchmarks.
Subject to tracking inaccuracy, the scheme’s investment goal is to offer returns that roughly match the total returns of the securities represented by the underlying index.
It is compared to the NIFTY 50 Total Return Index as a benchmark.
Strategies For Investment
The Scheme will attempt to meet its investment goal by tracking the Nifty 50 Index and employing a “passive” or indexing method.
The plan, unlike other funds, won’t attempt to “beat” the market it tracks and won’t take brief defensive positions when the market declines or seems inflated. The AMC will not intend to use any economic, financial, or market analysis, nor will it pass judgment on the investment potential of a specific stock or industry sector.
Indexing reduces the risk of effective control exceeding or falling short of a benchmark.
The plan will only invest in the security making up the underlying index because it is an investable fund.
Furthermore, the plan may be allocated/allocated securities that are not a component of the index due to corporate action in the companies that make up the index.
Up to 5% of the scheme’s total assets may be held in equities that aren’t represented by the relevant Underlying Index.
These investments that, as a result of company activity, are within the underlying index must be shored up within a week.
Exchange-Traded Fund (ETF).
ETFs are cutting-edge products that offer coverage to an index or a collection of assets that move like a single stock on the exchange.
Since ETFs can be bought and sold on the exchange at prices that are typically relevant to the actual intra-day NAV of the Scheme, they provide several advantages over conventional open-ended index funds.
ETFs are a development above conventional mutual funds since they give investors access to a fund that is associated with the performance of an index and allows intraday buying and selling.
ETFs are organized in a way that makes it possible to generate new units and redeem outstanding units directly with the fund, ensuring that ETFs trade close to their true NAVs. This is in contrast to listed close-ended funds, which routinely trade at discounts to NAV or significant premiums.
ETFs are typically passively managed funds whose unit purchases and sales are based on the trade of underlying securities.
In other terms, major institutions and investors can buy units by putting the preferred shares in a mutual fund or AMC’s account, and they can redeem units by getting the underlying shares in return. Units can also be purchased and sold directly.
ETFs’ reference point is anticipated to be less than that of a typical index fund. The mutual fund can maintain less money in cash since units are created and redeemed using the in-kind mechanism. A lot less time passes between purchasing/selling units and the underlying shares.
ETFs are very adaptable and can be used to equitize capital, arbitrage between the cash and futures markets, or acquire immediate exposure to the equity markets.
- Can be bought cheaply and traded on the exchange through terminals located all around the nation.
- Can be purchased or sold at any moment within market hours for a price that is anticipated to be similar to the scheme’s accurate NAV. Investors invest as a result at real-time pricing rather than closing-day prices.
- No need to fill out a separate form to acquire or sell units. It only takes a phone call to your broker or a web search.
- Potential to impose restrictions.
- An ETF requires a one-unit minimum investment.
- Prevents short-term investors’ influxes and evictions from harming long-term investors.
- Dynamic because it can be used to arbitrage between the cash and futures markets, equitize cash, and acquire rapid accessibility to the equity markets.
- Increases the estimated cash market’s liquidity.
- Promotes low-cost futures and cash market arbitrage.
- As the units issued would be in Demat form, an investor can obtain a unified view of his interests without inputting too many distinct credit reports.
ETF risk factors.
Lack of a Prior Active Market.
Even though ETF units are listed on the Stock Exchange for trade, there is no guarantee that a Prior Active Market will arise or continue to exist.
Lack of Market Liquidity.
Due to market conditions or for other reasons that the concerned Stock Exchange or Market Regulator deems to be unwise, trading in ETF Units may be suspended on the Stock Exchange where the ETF is listed.
Additionally, trading halts resulting from unusual market volatility are permitted under “circuit filter” regulations for ETF unit trading.
There can be no guarantee that the requirements of the relevant Stock Exchange will repeat or stay the same, which is required to retain the full list of the units of ETFs.
Portfolio composition and asset allocation of SBI ETF Nifty 50 Fund.
Approximately 99.6% of the fund’s assets are allocated to equities, 0.0 % to debt, and 0.4 % to cash and cash equivalents.
The top 3 sectors make up about 65.63 percent of the assets, compared to the top 10 equity holdings, which make up approximately 58.64 percent.
The fund invests across market capitalizations and mostly adopts a growth-oriented mode of investing, with about 0.0 percent going to gigantic and large-cap companies, 0.0 percent to mid-cap companies, and 0.0 percent to small-cap companies.
Tax repercussions in SBI ETF Nifty 50 Fund.
- If units are redeemed within a year after investing, gains are subject to a 15 percent Short-term Capital Gains Tax (STCG).
- Gains from units redeemed after one year of investment that total up to Rs. 1 lakh in a fiscal year are exempt from taxation.
- Long-term Capital Gain Tax, or LTCG, would be levied at a rate of 10% on gains above Rs. 1 lakh.
- The dividend income from this fund will be added to the investor’s income for Dividend Distribution Tax and taxed by the investor’s tax brackets.
- Additionally, the fund house must deduct a TDS of 10% on dividend income that exceeds Rs 5,000 in a fiscal year.
- Minimum Investment: Rs. 5000 is the absolute lowest investment needed, and Rs. 0 is the absolute minimum extra investment. The SIP investment minimum is Rs 0.
The Scheme’s Risk Factors.
The risk associated with equity: Equity instruments contain market and company-specific risks; hence it is impossible to guarantee returns for these investments.
Risks associated with unit transactions made through the stock exchange mechanism.
Lack of a Prior Active Market.
- Despite the Scheme being listed on the NSE, there is no guarantee that a Prior Active Market will arise or continue to exist.
- As a result, there’d be periods when trade in the Scheme’s Units would be rare.
- Credit risk, liquidity risk, interest rate risk, reinvestment risk, etc. are all risks associated with investing in money market instruments.
- Since investments in derivatives would be made, the risks related to such derivatives would be relevant.
- Liquidity risk, limited recourse risk, delinquency and credit risk, risks associated with potential prepayments, and bankruptcy risk associated with the originator or seller, among other hazards, are associated with investments in securitized debt.
- The plan won’t be actively managed because it plans to invest at least 95% of its net assets in the securities of its benchmark index.
- A widespread drop in the Indian markets affecting its underlying Index could have an impact on the Scheme.
- Regardless of their investing quality, the Scheme makes investments in the securities represented by its underlying index.
- The AMC does not make an effort to pick stocks on an individual basis or to take defensive positions in markets that are dropping.
Market Trading Risks.
- The relevant market trading risks could apply to investments in the scheme: Lack of market liquidity, and elimination of a formerly busy market.
- The plan’s units are subject to regulatory risk, the right to limit redemptions, redemption risk, and asset class risk, and must only be kept in Demat accounts.
- The fund’s units may trade for prices other than NAV.
Nifty 50 Index risk.
- The Nifty 50 Index is made up of 50 varied stocks. Equities have a high degree of volatility and their prices might change frequently.
- Various micro and macroeconomic factors that have an impact on the securities markets are to blame for the volatility in the value of equity instruments.
- This might hurt specific securities or sectors, which would therefore affect the scheme’s NAV.
Interest rate risk.
- This risk results from a lack of certainty regarding the potential rate of reinvested cash flow from the securities.
- While the interest rate for TREPs continues to be closely correlated to the repo rate, it may also change depending on the needs and stockpile of interbank lending.
- As a result, the rate at which TREPs are re-invested is still a potential concern.
- While TREPs are settled through CCIL (Clearing Corporation of India Ltd.), there is little chance of a collateral default.
- The “Default Waterfall” technique, meanwhile, is employed to fulfill the settlement process if a clearing member does not uphold their settlement responsibilities.
- The defaulter’s margins and defaulter’s contribution to the default fund have been allotted by the waterfall mechanism’s first phase.
- Second step: The contribution from CCIL is utilized to cover the losses.
- Third step: If there remains a residual loss after using the CCIL contribution, it is taken from the default fund contributions made by the non-defaulting members.
As a result, the scheme is exposed to the risk of loss up to the original margin and default fund contribution that would be used if any settlement obligations were to fail.
Tracking Error Risk.
Due to various factors, including the service charges of the specific scheme, stock splits, monetary base, variations to the underlying index, and related reforms, which may influence AMC’s chance to implement a strong link with the underlying index of the scheme, the Fund Manager would not be able to invest the entire corpus precisely in the same ratio as in the underlying index.
As a result, the returns of the scheme may differ from those of its underlying index.
The gap between the daily returns of the underlying index and the NAV of the corresponding scheme is what is referred to as the “tracking error,” and its statistical significance.
The potential causes of tracking errors include:
- The fund’s outlays for expenses.
- The keeping of a capital base and accrued income before income distribution and deferred expense payment
- The fund might not always be invested because it might keep some cash on hand to pay devaluations or cover corporate expenses.
- Circuit filters may cause a brief standstill in securities trading.
- The shareholding in the benchmark index is rounded off.
- Huge buy/sell orders are being carried out.
- Cost of the transaction, comprising taxes, the cost of the insurance, and ongoing expenses.
- Realization of funds owned by Unitholders.
The fund manager will make an effort to maintain the tracking error as low as possible. Such tracking inaccuracy is not anticipated to surpass 2% annually under typical conditions.
Nevertheless, the tracking error may surpass the aforementioned restrictions in situations like Income Distribution cum capital withdrawal option obtained from the underlying stocks or in unusual market conditions.
The achievement of any specific level of variation compared to the execution of the Index by the Scheme cannot be assured or guaranteed.
Risk management of SBI ETF Nifty 50 Fund.
Before expenditures, the scheme seeks to match the Nifty 50 Index strictly. To reduce tracking error, the index is regularly monitored, and any variations to the components’ weights or composition are reproduced in the underlying portfolio.
Different dangers come with investments in money market and equities instruments. Although such risks cannot be eliminated, diversification can help to reduce them.
The portfolio of the Scheme will be built in line with the investment restrictions established under the Regulations, which would aid in mitigating some risks linked to investments in the securities market, and mitigating various hazards.
Risk indicators for several factors are calculated and regularly checked.
The following points can be noted for risk management:
- The portfolio of the Fund is very liquid as a result of the stocks chosen under the underlying index being chosen using liquidity as among the criteria.
- Extremely illiquid equities are swapped for more liquid stocks when the index is reworked depending on specific factors. Likewise, the fund manager adjusts the portfolio.
- Consequently, there won’t be any liquidity problems with the scheme.
Risk of Interest Rates.
- Bond and equity values are both impacted by changes in interest rates. Bond prices decline when interest rates do, and conversely.
- In a situation of rising interest rates, equity may also be adversely impacted. This risk could be reduced with a well-diversified investment.
- Since ETFs are passive investments, they are less risky than actively managed funds.
- Due to tracking inaccuracy, the portfolio’s level of stock selectivity and instability will be the same as those of the index because it tracks the index. Because of the choices taken by the fund management, there is no added dimension of fluctuation or stock concentration.
- To reduce variability, the fund manager would make an effort to maintain low cash amounts.
How do mitigate these risks?
- A view of interest rates, the economy, and the projected negative effect will be used to guide hedging decisions rather than hedging blindly.
- For counterparties, proper limits will be imposed.
- Such exposure will be supported by assets, such as cash or securities, sufficient to cover the cost of derivative trading and any losses resulting from negative market fluctuations.