Nifty BeES – the only equity investment you would need

Yesterday I explained enough about the equities market to help understand the basics. Now in this post I will tell about a single Scrip that you can invest which has low risk and can return gains equal market gains. Indian equities market has given an average annual growth of about 16% over the long term. Imagine a stock which will give you 16% annual returns if invested over 30 years.

If you don’t want to understand anything and don’t want to think about your equity investment, just remember this one sentence. It will work for 95% of people.

Buy N shares of NIFTYBEES every month.

Thats it. Simple right? For example, If you have a surplus of Rs.10,000 every month that you want to invest in equities – close your eyes and instruct your broker to buy Nifty BeES for the Rs.10,000. At today’s rate (Rs. 576) you would get about 17 shares of Nifty BeES. Investing every month, you would have a few hundred shares of it in a few years, which would continue to grow as long as you stay invested.

Now for the longer explanation.

What is Nifty BeES?

Nifty BeES is an ETF (Exchange Traded Fund) by Goldman Sachs, which tracks the Nifty Index. To explain in simpler terms, Goldman Sachs has a computer program which takes your money and uses it to buy the equivalent number of all 50 stocks that the component of Nifty Index. Each single share of Nifty BeES is priced at 1/10th of the Nifty Index.

If Nifty is at 5700, the price of Nifty BeES would be (about) Rs.570. So if you buy 1 stock of Nifty BeES, the ETF would have invested in all of the 50 shares in Nifty. But you can say one can’t buy all of the stocks with just Rs.570. Right, but when lakhs of people buy it, the fund can buy enough stocks and your returns will be weighted according to your investment.

Why not buy specific company’s stocks?

You might be very interested in investing in specific company’s stocks because thats what everyone does and the people on TV are so experienced and say that they have 100% strike rate in picking winning stocks.

Do they really? No. This is a common problem when it involved finance matter (just like in astrology). They don’t talk about predictions that failed. Instead they make you focus on how their choice of one particular stock earned them 60% returns. They don’t talk about the 10 other stocks which made investors lose more money than they earned in that 1 winning stock. People are easily affected by “confirmation bias” and it greatly affect their investments.

Remember no one can select winning stocks every time. And you won’t know in advance which prediction would work out and which wouldn’t. If you invest in all the predictions they make, you would end up making more loss than profits.

How about mutual funds?

Mutual funds are managed by humans who check the fundamentals of a company and try to guess when to invest in a company and when to exit it. But like I said they are no better than the financial experts you see on TV.

Add a small fee that you need to pay the fund manager to handle your money, called “Expense ratio”. You would end up losing money before even making a bit of profit. All this for just some mediocre stocks picked by some human.

How is Nifty BeES different?

Nifty BeES is an index fund – your value of the investment would increase if Nifty increases, and it would fall if Nifty decreases. The value of Nifty is closely tied to how the Indian economy performs. If all the industries are doing well, nifty would definitely increase.

Whenever a company is removed from the index and a new company is added to the index, the ETF automatically makes the adjustment in the investment. It is exactly as if you are investing in these 50 front line companies. When invested in the long term you would definitely have increased your investment multiple times.

How is it less risky than buying a company’s stocks?

It is definitely less risky than buying a separate company’s stocks. Because you are investing in 50 stocks spread over about 22 sectors. How much more diversification do you need? Even if one particular sector is not performing well, say metals/sugar, there would be other sectors which would be performing well, like IT industries because of higher dollar price. Your investment would grow even if a few sectors underperform. Incase of a total bear market, your investment wouldn’t fall as badly as investing in a few companies.

Why not buy these 50 companies individually?

You can buy all the 50 constituents of the Nifty Index individually and get the same effect. But the advantage of buying Nifty BeES instead is you can invest a very small amount every month and it would grow at the same rate as Nifty. To buy even a single share of all Nifty companies you would be needing a much higher investment.

Managing the weightage of the different companies and reshuffling the portfolio whenever a company is taken out of the index and a new one is inserted, would be a headache. Which is easier, tracking 50 companies in your portfolio daily or tracking a single ETF once a month, just for 5 minutes to see how much profit you earned? Thats why the ETF has computer programs which do this automatically. And since it doesn’t have any human to make any decisions, you are protected from someone’s mistakes.

How do you buy it?

Buying Nifty BeES is very similar to buying a company’s stocks. Ask your broker or goto your online trading website and search for the scrip “NIFTYBEES” and buy the required quantity. Some brokers even have an option to invest a fixed amount or buy a fixed number of shares every month, called Monthly SIP (Systematic Investment Plan).

If your broker has that option, choose that and automatically every month your money is invested in Nifty BeES and you don’t have to even think about it. When you retire 30 years later, you would be sitting on a nice, fat load of profits than any of your friends. And the best part is, you wouldn’t have to pay a single rupee as taxes for any of this profit you earn (after 1 year of investment).

Just trust me on this and invest in Nifty BeES regularly. This is more than enough for 95% of a common man’s investment needs. Especially for beginner, start with Nifty BeES for 3 years and see the difference it makes vs your friends who invested in some new company.

28 thoughts on “Nifty BeES – the only equity investment you would need”

  1. thnaks for this post. i am new to stock market will surely buy niftybees, for more info. could u also tell what is gold bees and liquid bees please

  2. It’s good to know about this, but how safe is NiftyBees? By safety I mean is there any chance of not getting your money back in case something drastic happens? (e.g. if you have FD in a weak bank, you may lose your money if the bank fails). Is there any risk like this with NiftyBees?

  3. Investing in Nifty BeES is investing directly in equity market. All risks associated with equities are there in Nifty BeES too. But instead of investing in just 1 stock/sector, you are collectively investing in top companies in each sector. And you don’t have to choose the companies either as the exchange chooses them for you. However if Nifty tanks tomorrow, your investment would also go down by that much. But after a few years when Nifty makes new highs, your investment also would spring back up.

    FDs are safer than Equities and you have insurance for up to Rs.1 lakh. Anything more than that in an weak bank is gone if the bank goes bankrupt. But if a company isn’t doing well, it would be removed from the index and another company would replace it. FDs in big banks are a lot safer than equities, but remember with greater risk you get greater reward.

  4. Dear sir,
    Can I start a weekly sip in nifty bees or monthly sip in nifty bees.which is profitable in long run for wealth creation

  5. I just do have a small clarification and would be of great help if you have them sorted it out.

    I wanted to have 5K investment on a monthly basis.
    I am not that good with the mutual funds and other equities and hence preferred to have them avoided. However knew that the best of the returns is on equities only and hence thought of narrowing it down. After small research i felt to investing all the 5K in SIP monthly only in “nifty bees” and not in any other scrip. This is for a long term around 10+ yrs.

    Please do suggest that investing in “nifty bees” is a better investment product than individual stocks in the long terms.

  6. Rajesh,
    If you want a safer route to invest in equities, then Nifty BeES is a good bet. You would get the same returns as what the Nifty Index gives. Whenever Nifty rises, your money invested also rises. Whenever Nifty falls, your value also falls. There wouldn’t be any sudden surprises because of some bad fund management as it is passively managed – meaning, it mirrors the index stocks as it is.

    Doing a SIP helps to average out these volatilities and get you a better than average return over long term (like your 10 years).

    After a while, when you are feeling adventurous (ready to take some calculated risks) and want to get better returns, you can try your hands on investing in individual stocks or other mutual funds.

  7. What would be the tax implications of buying and selling NIFTYBEES. Say I buy once and sell after one year. Will the gains be taxed?

  8. Nifty bees is full equity investment. Long term capital gains in equity are not taxed. So if you sell after an year all profits are yours.

  9. Hello Srini.. Just wanted to confirm.. apart from the rise and fall of the nift points if there are any other areas the money is earned like dividends for niftybees…..

  10. Goldman Sachs also gives dividends to the unit holders. Last financial year (2013-14) the dividend was Rs.7 per unit for Nifty BeES. So, if you held 500 Nifty BeES, you would’ve got a Rs.3500 cheque or credit to your bank account.

  11. They mostly wouldn’t do a split or give bonuses. Because the ETF scheme information docs says the price of the ETF will be approximately 1/10 of Nifty points. If they intend to give bonuses/split, they would have to change that part of the documents and send it to the exchange.

    Whatever they do, you wouldn’t have to do anything as you are holding them all in electronic format.

  12. Hello Srini.. I was speaking about the nifty Bees and heard that they are pretty much equialent to the FD returns in the long run which would be around 9% and other blue chip or mutual fund that might even give 20% . I was planning to buy around 15 – 20 shares of Nifty Bees every month. Can you suggest if that is a better idea or i split the fund half of Niftybees and half into the mutual ufnds like HDFC or blackrock….Pls suggest..Thanks ….

  13. Hello Srini,
    What happens if I am holding GS Niftybees and something happens to Goldman Sachs. Is there any guarantee that I will get my money back?

  14. All investments in stock market or mutual funds are highly regulated by independent regulatory authorities by Govt. So your money is safe whatever happens to the parent company. Usually if GoldmanSachs is gone tomorrow, it won’t be able to take your money and run away. Buying 1 unit of NiftyBeES means you own a fraction of all the 50 stocks in Nifty Index. If GS goes away tomorrow, there can’t be a huge void of shares of these bluechip companies. These stocks are held by the MF for us.
    Even if they want to get out of the MF business, they will have to get acquired by some other fund house and they will handle all your ETF units. Infact, GS came to India by buying another fund house called “Benchmark MF” and they took over all the ETFs under their brand name.
    So don’t worry – whatever happens your money will be safe unless the market falls to 0 (which is highly unlikely).

  15. i am a novice and my query is can the nifty bees be sold as we sell the shares. So if the market is high and I want to sell can I do so as i would sell my shares? thank you

  16. Hi Srinivasan – Nice post. Nifty BEes is a very good option. I found many a times mid cap shares a far better. So, do you suggest some investment in JrNifty as well?

  17. Thank you for the great post without any bias. I heard Indian ETFs are not so popular therefore it will be hard to sell in huge volume when someone want to book the profits. If there are only less buyers, is there any other way to sell niftyBees? Thank you.

  18. Very informative document.
    I just have one question. How the profit is calculated? Profit divided by number of shares
    Example if nifty is at 5000 and I invested 10000 in nifty BeEs so I will get 20 shares.
    If suppose after some time nifty goes to 5100 then what will be the profit I will get. Will it be 100/20 = 5 or something else or it will be directly as if nifty goes up by 100 your value goes up by 100.
    Thank you

  19. Hi Srini,
    Thanks to you, I have been doing NiftyBees SIP for some time now and I have first hand experienced what you’ve mentioned around no sudden surprises. That said, I’ve also heard about GS GoldBees.

    Are they similar to Niftybees, what risk does it amount to split my SIP between Niftybees and Gold Bees

  20. I don’t agree with last line..”with greater risk you get greater reward.” This wrong concept has made many people lose lots of money..F &O is one example. infact its the opposite..!! With greater precaution are associated greater rewards..!!

    One has to look for liquidity in many of Nifty ETFs out there and expense ratio. Of both are good, then this article holds true..!

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