ICICI Prudential Bank ETF – Should you invest?
Banking sector is one of the evergreen sectors that has been outperforming in India in the last 5-10 years. To encash this, ICICI Prudential has come up with its new Bank ETF now. ICICI Prudential Bank ETF would open for subscription on 3rd July, 2019. This Bank ETF would invest in the underlying stocks of the NIFTY Bank Index and would be in line with this index performance. What are Exchange Traded Funds (ETFs)? What are the features of the ICICI Prudential Bank ETF? How the Performance of NIFTY Bank Index in the last 5-10 years? Are there any existing Bank ETFs now in India?
What are Exchange Traded Funds (ETFs)?
ETFs are generally passively managed mutual fund schemes tracking a benchmark index and reflect the performance of that index. Bank ETF is where it tracks the NIFTY Bank Index.
Benefits of investing in an ETF
1) It tracks the underlying stocks
2) It has a low expense ratio as fund manager would invest in the underlying stocks
Features of ICICI Prudential Bank ETF
This is an open-ended Exchange Traded Fund tracking Nifty Bank Index. Currently NIFTY Bank Index has 12 most liquid and large cap stocks.
This ETF would open for subscription on 3rd July, 2019.
This scheme would close for subscription on 8th July, 2019.
Minimum investment is Rs 5,000 and in multiples of Rs 1 there-off for lump sum investments.
There is no entry load to invest in this mutual fund scheme.
There is no exit load for this scheme.
This ETF scheme is classified as HIGH-risk scheme.
These ETF units would be traded on BSE/NSE like any other stock.
What does NIFTY Bank Index contain?
Who can invest in this Exchange Traded Fund (ETF)?
Any of the following can invest in this scheme in this scheme.
1) Resident Individuals
2) Resident Indian Nationals, including partnership forms, companies, Banks, HUFs, Sole Proprietorship etc.,
4) Foreign Portfolio Investors
Who is the Fund Manager of ICICI Prudential Bank ETF?
The Fund Manager is Mr. Kayzad Eghlim
What is the benchmark for this ETF?
The benchmark for this ETF is Nifty Bank TRI.
Can NRI invest in this MF scheme?
Yes, they can invest in this scheme.
Why to invest in ICICI Prudential Bank ETF?
Here are a few reasons to invest in this fund.
1) Exchange Traded Funds would reflect underlying Index performance. If you think that this index would perform better, you can just go and invest in this ETF. Currently Indian economy is in growth phase which would reflect in banking sector.
2) The NIFTY Bank Index has outperformed in the last 5-10 years. It is expected to grow in future too.
3) Govt of India focus is on Infra sector where banking sector plays major role. Hence banking sector is going to outperform in coming years and it would reflect in NIFTY Bank Index growth too.
4) ETFs comes with low expense ratio. Your returns would be higher in this case.
Some key risk factors you should consider before you invest in such ETFs
One should consider some of these risk factors / negative factors before investing.
1) Investing in this Bank ETF is like investing in single sector i.e. banking sector. If the banking sector is in down trend, it would reflect in this index too.
2) Fund manager in this Bank ETF has no scope to invest in stocks other than that are listed in the NIFTY Bank Index. Even if the underlying stocks are performing bad, he still need to invest in these stocks.
3) If the banking sector crisis that we had in 2008 across the globe repeats again, it can wash away your investment in this fund.
4) In bear market or stock market crash, Banking Index would fall higher than normal index. Investors should be ready to bear this.
How is the Performance of NIFTY Bank Index?
Let us quickly check how this index performed in the last 5-10 years.
1) The NIFTY Bank Index has provided 16% annualized returns in the last 10 years. NIFTY50 has provided 12% annualized returns and NIFTY500 Index has provided 12% annualized returns.
2) The NIFTY Bank Index has provided 15.7% annualized returns in the last 5 years. NIFTY50 has provided 10% annualized returns and NIFTY500 Index has provided 11% annualized returns.
3) The NIFTY Bank Index has provided 20% annualized returns in the last 3 years. NIFTY50 has provided 14% annualized returns and NIFTY500 Index has provided 13% annualized returns.
4) The NIFTY Bank Index has provided 15% returns in the last 1 year. NIFTY50 has provided 10% annualized returns and NIFTY500 Index has provided 4% annualized returns.
If you observe, the NIFTY Bank Index has always been out performing NIFTY50 or NIFTY500 Index in the last 1 year to 10 year period.
How is the Banking ETFs Performance in India?
Currently there are already existing Banking ETFs. While most of the ETFs should deliver similar returns as the underlying stocks are same, let us look at the performance where the difference should be only the tracking error.
1) Kotak Banking ETF: This ETF Fund gave 13% annualized returns in the last 4.5 years, 20% annualized returns in the last 3 years, 20% returns in the last 1 year.
2) Edelweiss Banking ETF: This ETF Fund gave 20.67% annualized returns in the last 3 years and 19.64% returns in the last 1 year.
3) SBI ETF Nifty Bank Fund: This ETF Fund gave 20.56% annualized returns in the last 3 years and 19.55% returns in the last 1 year.
Should you invest in the ICICI Prudential Bank ETF?
ICICI Prudential Bank ETF invests in NIFTY Bank Index. Means it would invest in the underlying stocks of this index. The NIFTY Bank Index has been outperforming in the last 5-10 years. This trend would continue in future too. However, investing in a single sector like banking is high risk. Since most of the NIFTY Banking ETFs would provide similar returns, you can invest in this new ETF or invest in existing ETFs. However, these are for High Risk Investors only. Alternatively, you can invest in some of the best banking mutual fund schemes which can provide higher returns compared to such ETFs in medium to long term.
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ICICI Prudential Bank ETF – Should you invest