Banking sector has been is one of the evergreen sectors in India. However, with covid crisis, Bank NPAs are expected to increase in coming quarters. While stock markets are recovered, banking sector is yet to recover fully. To encash this, mutual fund houses are floating banking sector ETFs. Axis Banking ETF would open for subscription on October 16, 2020. In this article, we would provide Axis Banking ETF NFO issue details and also indicate how the NIFTY Bank Index performed in the last 20 years.
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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
Axis Banking ETF – Issue details
This is an open-ended Exchange Traded Fund tracking Nifty Bank Index. Here are the ETF issue details.
|Scheme reopens for continous purchase/sale||After 5 working days from closure of NFO|
|Minimum investment (Lumpsump)||Rs 5,000|
|NAV of the fund||Rs 10 during NFO period|
|Risk||Moderately High Risk|
|Max Total expense Ratio (TER)||1.00%|
|Benchmark||Nifty Bank TRI Index|
|Fund Manager||Mr. Ashish Naik(for equity portion)|
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 weightage.
What is the allocation pattern in this ETF?
Here is how the scheme would invest:
|Type of instruments||Allocation %||Risk Profile|
|Equity & Equity related instruments^coveredby Nifty Bank Index
|95% to 100%||High|
|Debt & Money Market Instruments
and/or units of debt/liquid schemes of domestic Mutual
|0% to 5%||Low to medium|
Why to invest in Axis Banking ETF?
Here are a few reasons to invest in this ETF.
1) ETFs 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 bank NPAs are expected to rise.
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.
Here is the performance chart.
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Should you invest in the Axis Banking ETF?
Axis 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 due to shut down of small and medium size business. Loan defaults are expected to increase in coming quarters as moratoriums in the last 6 months have helping them till now. 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 to medium term we do not know how banking industry would perform, hence one should not expect any high returns.
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