Creating a NIFTYBANK++ Index-Fund using Smallcase

Hi All,

i am new to this and would like to share something i noticed based on the various sources i have read.

Let us say one in interested in investing (not trading) based on NIFTYBANK index.
One of the simplest ways to do this would be to simply buy one of the many ETFs available.

Currently, among the NIFTYBANK ETFs with High Liquidity,

ICICIBANKN ETF appears to be the one with the lowest overheads (Expense ratio) .

Also, when investing over the long-term,
i assume a lower liquidity may NOT be a major concern,
i.e. when selling/exiting after several years, one can afford to wait a few days.

EBANK ETF appears to be the ETF with the lowest overheads (Expense ratio) overall in this bunch.

Thus, if one wishes to invest Rs. 1Lac into one of these 2 NIFTYBANK ETFs,
the current expense ratios of 0.15% or 0.12%
effectively amount to Rs.150 or Rs.120.

Alternately, one could purchase and hold
all the constituent 12 stocks of the NIFTY BANK index
in the same ratio as the NIFTYBANK index.

It appears that Smallcase makes it extremely easy to do this.

As one cannot purchase fractional shares,

  • A minimum amount needs to be invested to purchase all the constituent stocks of the index.
    (in this case Rs.62K).

  • The ratio of the stocks in the index vs. ratio of the stocks purchased is slightly different.
    (in this case, <1% point for few stocks).

For an investment of Rs.1Lac,
the charges of purchasing a Smallcase = Rs.118 (100+GST)
amount to 0.118% overhead.

Thus, for an investment of Rs.1lac,
the expense overhead of manually creating and purchasing a Smallcase
is nearly as low as the ETF with the lowest expense ratio (0.12%). :slightly_smiling_face::bulb:

Advantages of holding individual stocks (instead of an ETF) ?

  1. Can get higher exit/selling prices of a stock with poor fundamentals that will be removed from the index
    by rebalancing the stock holdings manually (selling off the underperforming stock) , sooner than the index.
    Note that NIFTYBANK is rebalanced ONLY once every 6 months.

  2. What other advantages can you think of ?.. :thinking:

Disadvantages of holding the individual stocks (instead of an ETF) ?

  1. Need to manually purchase/sell individual shares in reaction to any changes in the index.

  2. Slightly lower exit/selling prices than what the ETF gets (as one would be reacting to popular sentiment).

  3. What other disadvantages can you think of ?.. :thinking:

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The calculations to be carried out,
to periodically (every 6months) rebalance the NIFTYBANK index and determine the constituent stocks,
appear to be clearly documented here.

Even though one might NOT be able to predict the exact % rebalancing of various stocks in the index, one could make a fair approximation of it.

More importantly, by manually applying the index methodology to the publicly available information of eligible bank stocks, one can calculate / predict with confidence any stock that shall be added to / dropped from the index (ONLY the top 12 by Market-Cap.) a few days/weeks in advance of the bi-annual NIFTYBANK index rebalancing event. Right? :thinking:

Assuming a stock being added to the index results in its price going up,
and a stock being removed from the index results in its price going down,

One benefits from rebalancing one’s Smallcase
in advance of the scheduled biannual NIFTBANK index rebalancing.

  • One purchases at a current discount, some shares of a stock that is going to be added to the index.
  • One sells at a current higher price some/all shares of a stock that is going to be removed from the index.

Thus, manually rebalancing a Smallcase of constituent stocks,
in advance of the index being rebalanced,
one should be able to broadly follow the index and slightly beat it. Right? :thinking:

why are you complicating your life so much? Just buy BANKBEES ETF which has good liquidity at strategic dips (oversold zones) & partial exit/re-entry (as i had stated in my other post) you see how you can compound your wealth. Keep investments simple with active strategy on passive instruments …


Exactly. Simple strategies are more effective.

This definitely sounds simpler than the strategy i had in mind. :+1:
Can you elaborate a bit more ?
(or share a link to your other post if it has the details already)

Also, anyone has any tool/website recommendations
to back-test Coolbird’s and my strategies in this thread?

for my strategy, you can do it in excel/google sheet by taking in all historic ETF prices…it gets tricky for getting entry points using rsi or william%r but even that can be formulated.