Is it better to invest in Nifty ETF or directly invest in shares of Nifty 50 companies? The main contention is losing out on dividends and bonus issues from these companies? Kindly correct me, if I’m wrong.
Buying all 50 nifty shares and managing is much more cumbersome than buying index funds, also to match nifty weightage individually it would cost more than 10 lakhs, etf or mutual fund is the right way to do index investing by retailers. Also I personally would recommend to buy index mutual fund to invest in nifty stocks than etf for new investors or users who are not much versed with market dynamics. Also check this thread on etfs.
Mutual funds have definitely lost the trust after recent debacles. Hence just comparing ETF with direct investing. Only thing I’m confused is that, as Nifty ETF invest in shares of the index, what will happen when some of these companies issue dividends or bonus issues?
I also want to know about this please answer it if someone known that
Any other benefits like dividends with individual stocks ?
ETF have following disadvantage
- There are costs like marketing, trading, trustee, custodian etc associated to running a ETF. The costs are added up and called Total expense ratio (TER). This can be completely saved.
- The dividends when paid come directly to bank account. Hence time value of dividends is in control of the investor. Please note this is not the same as dividend option - where its still the ETF manager that times the dividend payout.
- The ETF can technically not pay/delay redemption in bad situtations. What is happening now is that the bid-ask spread on ETF is much higher than weighted average of bid-ask on NIFTY stocks. So you pay more to buy an unit of ETF now.
Advantages
- Operationa efficiency of having to manage 50 stocks daily
- You dont need to pay short term capital gains tax for transactions done inside a ETF for you. But given long term and short term taxes are only 5% apart, not sure how big an advantage is it now
- Average/Median managers in India outperform index by 5-6% usually. So passive investment in India is still npt a great idea. Remember India has about 5000 listed stocks and NIFTY only represents 50.
In my opinion, its better to buy low cost active funds.
No. What debacles are you talking about?
You are entitled to the dividends. But MFs/ETFs don’t these out, but they re re-invested which means the NAV of the fund will go up.
As to your question about buying individual stocks directly, it’s a terrible idea. The costs, maintaining the weights and rebalancing will ensure, your performance is probably worse then a comparable index fund/ETF.
Stick to index funds and avoid ETFs for now.
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There are debcles. NAV side pocketing of FMP mutul funds, huge bid-ask in ETFs now, tracking error of passive ETFs. @Bhuvan - think these are not debacles ?
Debt funds is a debacle, but here the question was about equity ETFs/funds.
No, welcome to the Indian markets. The bid/asks are a function of liquidity and if enough people don’t trade ETFs then no liquidity.
Again, a market maker isn’t obliged to make markets! He’ll only make markets if it makes sense for him and if he can make money. Market making has costs too!
“Buyer Beware”! is the norm than an exception, In such a case, you’ll have index funds.
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Mutual funds job is to follow their specified objective of investing, instead they started giving loans to promoters like NBFCs. Mutual funds are not any more sahi hai, bohat kuch galat hai!!
Equity funds are different and debt funds are different. They aren’t the same.
They are not same but both have problems. But most importantly, India is not the market where you should go passive on index ETF by any means. Even gold ETFs that are supposed to be back by real gold are not getting physical gold delivered to their vaults. As an individual investor, you are way better off in your individual account holding few quality names and market leaders if you need to be in passive now.
I agree, instead of holding and managing all 50 companies of Nifty which can be cumbersome, we can take top 10 as per weightage and follow a SIP model kind of investing, is this the correct way or anything better available?
Go buy an INDEX FUND instead!
Is this the reason say Nifty Bees, Bank Bees and Junior Bees are trading at more value than their underlying?
I think so. So when you buy you pay underlying+markup - so you lose money immediately like bid-ask.
Interesting