HDFC Banking ETF – Banking NPAs are expected to increase – Should you invest then?

HDFC Banking ETF - ReviewHDFC Banking ETF NFO details


Banking sector is one of the evergreen sectors that has been outperforming in India in the last two decades. However, with covid-19 crisis, there is fear of an increase in non performing assets and banking stocks has been crashing. Till few weeks back, these were available at damn cheap prices and some recovery is happening now. To encash this, HDFC Mutual Funds have come up new Bank ETF now. HDFC Banking ETF would open for subscription on August 10, 2020. In this article, we would provide HDFC Banking ETF NFO issue details and whether it makes sense to invest in banking sector that is getting impacted with increase in NPAs now due to covid-19.

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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 index underlying stocks

2) It has a low expense ratio as fund manager would invest in the underlying stocks

HDFC Banking ETF – Issue details

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 August 10, 2020.

This scheme would close for subscription on August 14, 2020.

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.

Fund Manager is Mr. Krishan Kumar Daga

Benchmark for this ETF is Nifty Bank TRI.

HDFC Banking ETF KIM here.

Here is the video version of the issue details of HDFC Banking ETF that is issued by HDFC Mutual Funds

 

Who can invest in this mutual fund scheme?

Any of the following can invest in this scheme in this scheme.

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1) Resident Individuals

2) Resident Indian Nationals, including partnership forms, companies, Banks, HUFs, Sole Proprietorship etc.,

3) NRI’s

4) Foreign Portfolio Investors

What is the allocation pattern in this ETF?

Here is how the scheme would invest

1) It would invest 95% to 100% in securities covered under the NIFTY Bank Index. This would fall under medium to high risk profile.

2) It would invest up to 5% in debt securities and money market instruments. This would fall under low to medium risk profile.

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What does NIFTY Bank Index contain?

It contains 12 stocks from the banking sector. Here are the stocks that are part of this index along with its weight-age.

HDFC Banking ETF - Stocks under NIFTY Bank and their weightages

Why to invest in HDFC Banking ETF?

Here are a few reasons to invest in this ETF.

1) Exchange Traded Funds would reflect underlying Index performance. If you think that banking index would perform better in the coming years, you can just go and invest in this ETF.

2) The NIFTY Bank Index has outperformed in the last 15-20 years. It is expected to continue to grow in future too.

3) 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) Due to covid-19 crisis, many small to medium businesses are collapsing. There could be increase in loan defaults and NPAs of the banks. This would put pressure on the banks.

2) 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.

3) If the banking sector crisis across the globe that happened in 2008 is repeated again, it can wash away your investment in this fund.

How is the Performance of NIFTY Bank Index?

Let us quickly check how this index performed in the last 20 years.

How is the Banking ETFs Performance in India?

Currently there are already existing Banking ETFs (either tracks NIFTY bank index or S&P BSE Bankex). While most of the ETFs should deliver similar returns as the underlying stocks are same (except tracking error + any portion that may invest in debt segment), let us look at the performance of these schemes.

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Banking ETFs performance in the last 5 years till 2020

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Should you invest in the HDFC Banking ETF?

HDFC Banking ETF invests in NIFTY Bank Index i.e. it would invest in the underlying stocks of this index. The NIFTY Bank Index has been outperforming in the last two decades. However, the trend might get affected due to covid pandemic where several businesses are getting shut down. Loan defaults are expected to increase in coming quarters as moratoriums in the last 4-5 months are now helping them. This uncertainty would continue till the virus vaccine is found. If you are a high risk investor and willing to invest for long term of 8-10 years, you can invest in such ETFs. In the short term we do not know how banking industry would perform, hence one should not expect any high returns. 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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Suresh KP

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