Banking remains one of the core sectors of the Indian economy that has been benefiting from the overall growth in the economy. Investors keen to invest in banking sectors have chosen mutual fund route for a long period of time. Among the actively managed funds, there are too many options to choose from and there is no performance guarantee like any other mutual fund scheme.
There is a segment of investors that opts to park their funds in the exchange traded funds (ETF) that track CNX Bank Index. These investors have benefited on two parameters. First: returns. Second: the flexibility and quantum of transactions these exchange-traded funds offer.
There are two offerings in the market that offer this option. Banking BeES is an ETF that comes from Benchmark AMC. The scheme was launched in May 2004 and aims to track CNX Bank Index with Rs 107 crore worth of assets under management, as of April 31, 2009. The fund has delivered 25.47% annualised returns since launch. Formidable player in the industry – Reliance AMC – has Reliance Banking ETF, which was launched recently in May 2008, has Rs10.02 crore under management as of April 31, 2009.
The two funds are doing well for some time now in sync with the booming underlying CNX Bank Index and have delivered more than 80% over last three months. The only difference that one may come across is the ‘expense ratio’ of both the funds. Benchamark Bank ETF (BeES) has an expense ratio of 0.5% whereas its relatively new counterpart from Reliance AMC stands at 0.35% on annualised basis.
Expense ratio means a measure of what it costs an investment company to operate a mutual fund. Says Rahul Amritlal, analyst with a financial planning firm, “Even though exchange traded funds have offered good returns, investors should keep a tab of the quantum of transactions these funds see on daily basis, while transacting in exchange traded funds.” While BeES sees in excess of 1000 units traded everyday, Reliance Bank ETF experiences much less transactions thanks to the small asset base.
Not to mention of these funds’ dependence on the sector it maps. Hence, investors should take into account the factors that would sustain the growth of banking sector. The banking sector funds also carries the concentration risk, as the funds future is married with the performance of just one sector and there is no scope for diversification. While recommending actively managed funds over index funds a mutual fund analyst with a brokerage says, “Given the evolving nature of Indian stock markets, there is ample scope for outperformance by mutual funds. Hence it makes more sense to go for actively managed funds than the index funds.”
There is a segment of investors that opts to park their funds in the exchange traded funds (ETF) that track CNX Bank Index. These investors have benefited on two parameters. First: returns. Second: the flexibility and quantum of transactions these exchange-traded funds offer.
There are two offerings in the market that offer this option. Banking BeES is an ETF that comes from Benchmark AMC. The scheme was launched in May 2004 and aims to track CNX Bank Index with Rs 107 crore worth of assets under management, as of April 31, 2009. The fund has delivered 25.47% annualised returns since launch. Formidable player in the industry – Reliance AMC – has Reliance Banking ETF, which was launched recently in May 2008, has Rs10.02 crore under management as of April 31, 2009.
The two funds are doing well for some time now in sync with the booming underlying CNX Bank Index and have delivered more than 80% over last three months. The only difference that one may come across is the ‘expense ratio’ of both the funds. Benchamark Bank ETF (BeES) has an expense ratio of 0.5% whereas its relatively new counterpart from Reliance AMC stands at 0.35% on annualised basis.
Expense ratio means a measure of what it costs an investment company to operate a mutual fund. Says Rahul Amritlal, analyst with a financial planning firm, “Even though exchange traded funds have offered good returns, investors should keep a tab of the quantum of transactions these funds see on daily basis, while transacting in exchange traded funds.” While BeES sees in excess of 1000 units traded everyday, Reliance Bank ETF experiences much less transactions thanks to the small asset base.
Not to mention of these funds’ dependence on the sector it maps. Hence, investors should take into account the factors that would sustain the growth of banking sector. The banking sector funds also carries the concentration risk, as the funds future is married with the performance of just one sector and there is no scope for diversification. While recommending actively managed funds over index funds a mutual fund analyst with a brokerage says, “Given the evolving nature of Indian stock markets, there is ample scope for outperformance by mutual funds. Hence it makes more sense to go for actively managed funds than the index funds.”
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