Understand the differences between Nifty 50 Vs Nifty BeES: Nifty 50 is one of the two essential indices in the Indian stock market that represents the overall performance of the economy. Based on this index, Benchmark Asset Management introduced an Exchange-traded fund called Nifty BeES.
In this article, we will be discussing Nifty 50 vs Nifty BeES and cover the various aspects between the two.
What is Nifty 50?
Nifty is derived from the combination of two words National and Fifty. It is an index that is the benchmark of the National Stock Exchange. It comprises the 50 largest companies in the Indian Stock market.
What are Nifty BeES?
Nifty BeES is an exchange-traded fund (ETF) which is a basket of securities that reflect the composition of the Nifty 50 Index. This ETF is listed n the stock exchange and can be bought and sold like any other regular stock.
Nifty BeES tracks the Nifty 50 index and provides individuals with returns that are similar to the Nifty 50 index. It trades at 1/100th of the value of the nifty 50 index which offers individuals the to diversify their investments at a low cost.
Nifty 50 vs Nifty BeES Constituents
Now that we have understood the meaning of Nifty 50 and Nifty BeES, let us now see how the stocks are selected for both of these.
Eligibility criteria for inclusion of Stocks in Nifty 50
- The most accurate metric for determining a stock’s liquidity is market impact cost. It appropriately depicts the expenses incurred when trading an index. For a stock to be eligible for consideration for inclusion in the NIFTY50, it must have traded with an effective cost of 0.50% or less on average over the previous six months for 90% of the observations, with a basket size of Rs 10 crores.
- The company should be listed for at least six months in order to be eligible for inclusion in the index.
- In order to be eligible for inclusion, the company must be allowed to trade in the futures and options segments.
- The company that comes out with an IPO will be eligible for inclusion in the Nifty 50 index if it fulfills the complete eligibility criteria for 3 months instead of 6 months.
Weighting Methodology for Nifty 50
Once the stocks become eligible for inclusion in the index, they are given weightage based on the free-float market capitalization method. The market value of these 50 stocks is reflected relative to the base period which is November 3, 1995.
To know more about the nifty 50 weightage method visit our article on “NIfty 50 Weighting Method”
Nifty BeES constituents
Based on the explanation given for Nifty BeES, it is understood that the ETF replicates the Nifty 50 index. Thus, Nifty BeES constitute the same stock as the Nifty 50 index and they are weighted in the same way as the Nifty 50 index, with a small portion that might be allocated to cash and other receivables.
Nifty 50 vs Nifty BeES Rebalancing Dates
Let’s now understand what are the rebalancing dates for both Nifty 50 and Nifty BeEs respectively:
Nifty 50 Rebalancing Dates
The index goes through rebalancing on a semi-annual basis on January 31 and July 31 of each year to evaluate if any changes are required in the index. A 4-week prior notice will be given to the market in case any changes are made to the index.
The Index can go through an additional rebalancing in case of corporate events such as a merger, spin-off, forced delisting or suspension, etc
Nifty BeES Rebalancing Dates
The Nifty BeEs also rebalances as and when there are any changes and rebalances made in the Nifty 50 index.
Investing in Nifty 50 vs Nifty BeES
Although the Nifty 50 index can be traded in the futures and options segments, it cannot be bought and sold like ordinary shares. Its main purpose is only to represent the overall health of the company.
As for Nifty BeES, it can be bought and sold like regular shares on the Demat account and as they are priced 1/100th of the Nifty 50 index, they are very affordable to buy for investors.
Returns in Nifty 50 vs Nifty BeES
Moving forward we will discuss the historic returns that Nifty 50 vs Nifty BeES have given –
Returns in Nifty 50
Returns in Nifty BeES
Although the constituents of the Nifty BeES only replicate the Nifty 50 index, you can see that the Nifty BeES have given better returns than the Nifty 50 index over the last 5 years.
In this article, we discussed Nifty 50 vs Nifty BeES by covering what is Nifty 50 and Nifty BeES, their constituents, and their returns.
After covering the above concepts, it is understood that both Nifty 50 and Nifty BeES go hand in hand. While the Nifty 50 index represents the entire economy through the top 50 companies from different sectors, Nifty BeES allows individuals to indirectly invest in the index through which they can diversify their portfolio and mitigate risk.
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