NIFTY ETF Horror Story

ETF enables us to capture intra day opportunities since it acts like a stock. We can buy it and sell it same day.

This is a benefit for ETF over Index Mutual Funds where your units are bought at NAV price, as per end of the day. Sometimes this boon for ETF could become curse too.

Here is what happened;

In the year 2020, during covid crash, On march 23rd.

Nifty fell by 13% in a single day !!

This was an opportunity and every one with some cash became a buyer in NIFTY ETF. Logical move.

SBI Nifty 50 ETF traded in a wide range of 79-102 throughout that day and ultimately settled at 84 by the end of market hours. So this SBI NIFTY 50 BeES was the exchange traded fund, with benchmark as Nifty50 index and operated by SBI asset management Company. Yes you guessed it right this is a sister concern of SBI bank.

Then comes the Index fund NAV report which is a fair value or benchmark.

To everyone’s shock, the settlement fair value, calculated for this ETF was 78 versus ETF exchange close price of 84. This is a damn high premium.

Understand this my friend, when fair value of NAV was 78, ETF investor bought it at 84. Paid 6 points extra.

This 6 points divided by 78 is a crazy 7% premium over fair value.

Impact of 7% ; You should understand the impact of 7%.

It is not an acceptable blunder at all. This is 7 lakh rupees paid extra, if you bought 1 crore worth NIFTY ETF on one of the best day to buy Nifty index in recent history!!

1 crore in bank Fixed deposit gives 7 lakh rupees interest after 1 year. That 7 lakh lost here.

And the buyer of that particular ETF had no idea what premium he was paying until the end of the day, by which …..it was too late.

This Investors tracking error, just shot up by 7 % extra because of this premium. That is the kind of damage you suffer when you buy ETF blind without having a fair assessment of ETF’s Fair value.

Taking due note of this situation, the market regulator SEBI introduced a mechanism called i-NAV in June 2022.

Given that ETFs trade real-time, you need a reference point to analyse and see if the market price you are being quoted on your trading platform is a fair one. The indicative or intraday NAV (i-NAV) serves as that reference.

Until last year, investors had no means to figure out if an ETF was being sold at a premium or a discount. That’s because NAVs are only disclosed at the end of the day.

So ultimately in July 2022, markets regulator SEBI mandated all fund houses to disclose i-NAV on a realtime basis. This gives yo a glimpse of an ETF’s fair price

Therefore, before buying and selling ETFs, check the ETF’s i-NAV. It can be a very useful tool for you. You can find the i-NAV on the stock exchange’s website

Below you will see screenshot from NSE website

The above image is where you are paying .40 premium. Some other days, i-nav can indicate that you get a discount too. Check the below image

The above image says, fair price is 215.58 you get to buy the ETF at 215.45

Discount of .13 paise per unit, on NAV price.

Imagine if we had this i-NAV system back in march 2020. Many people would have been saved.

I am sure many influencers who make videos on ETF or Index funds never knew that INAV even existed. They wont know because, they never actually invest or deal with clients money. They do not have practical knowledge of stuff. Just theoretical know-how with great video marketings skills.

You need a surgeon/SEBI registered Investment Advisor. Influencers are like those pharmacists who are, loud and available at every nook and corner.

We on the other hand, know this because we are SEBI Registered Investment Advisors. We deal in real money with our clients.

Just putting it out there because nowadays, “ jo dikgta hain, wahi bikta hain” .

CHECKLIST BEFORE INVESTING IN ETFs

• Be mindful of trading costs, frequent trading can reduce returns.
• Monitor tracking error.
• If any Know how ETFs handle dividends: some may distribute, others may reinvest.
• ETF's market price may deviate from its NAV.

Some of us still do not know ETF. Its full form is Exchange Traded Funds (ETFs) ETFs KEY FEATURES

• ETF mirrors the portfolio of underlying benchmark.
• Nifty 50 ETF, for example, mimics the Nifty 50 index, giving investors access to the same portfolio as the Nifty 50 index.
• ETFs Are traded continuously, allowing instant buying and selling at current prices.
• The investor can buy as low as 1 unit directly through the exchange. (NSE or BSE)
• Cost of 1 unit is close to nifty price divided by 100. Thus if price is 20,000 for Nifty Index, 1 unit costs 200 approx.

What is NFTY BEES is a ETF

I found. youtube video that explains this

ETF acts as Stock as well as Index Mutual Fund

The below video explain in 2 minutes and clears your confusion about

• Gold BEES
• Nifty BEES
• Bharat Bond BEES
• HangSang BEES

ETF strategy to buy

If you can invest say 5000 rupees per month into share market. There are 20 working days.

This means 5000 divided by 20 = rupees 250 per day investing.

The day when nifty index is up. Do not invest. Hold it.

Next day, if Nifty index is down. Candle is red. Invest yesterday's rs 250 + today’s 250 = Rs 500.

So only on bad days, You are investing in market. Holding period is forever.

Keep adding a small amount which you wont need forever. These strategy will keep you immersed in market also will give a long term sure short alpha returns with less stress.