NIFTY BeES (Nifty Benchmark Exchange Traded Scheme)

is a mutual fund product, but it is traded on NSE like any

company’s share. It is an open-ended mutual fund scheme.
Like a share, one can buy/sell units of Nifty BeES on NSE
(National Stock Exchange) throughout the trading hours.
NIFTY BeES is traded in demat form only. One can buy
NIFTY BeES from NSE through one’s broker and the units
will be credited to one’s demat account on normal T+2 basis.
If one desires, one can sell the units again through NSE
anytime during the trading hours.

Rama Krishna Vadlamudi vrk_100@yahoo.co.in

MUMBAI

September 30th, 2009

FOR REGULAR UPDATES ON THE AUTHOR'S DOCUMENTS: JUST CLICK

www.scribd.com/vrk100

Rama Krishna Vadlamudi, MUMBAI. vrk_100@yahoo.co.in. Sept. 30, 2009 Page 1 of 8

EXCHANGE-TRADED FUND (ETF):

An ETF is basically an index mutual fund scheme with a little
difference

The main difference between an index fund and an ETF is this: an ETF
is always listed and traded on an exchange; whereas an index fund
has to be bought/sold directly with the particular Mutual Fund
company or through a mutual fund agent/distributor

An ETF is linked to a benchmark index like any index fund

An ETF can be bought and sold through an exchange like any share

To buy an ETF, one requires a demat account and a trading account
with a broker to buy/sell on the particular exchange where the ETF is
listed/traded; whereas for buying an index fund, investor does not
require a demat account and she can directly approach the mutual
fund for buying or selling the index fund units

SALIENT FEATURES OF NIFTY BeES:

One unit of NIFTY BeES is equal to one-tenth of the value of S&P CNX
Nifty Index. On 29.09.09, Nifty 50 index has closed at 5,007; whereas,
NIFTY BeES was quoting at Rs 498 on day’s closing. The small
difference (technically called tracking error) between the underlying Nifty
index and NIFTY BeES is due to the supply and demand factors of NIFTY
BeES on NSE. On 29.09.09, its day’s high was Rs 500 and day’s low was
Rs 495. During the trading hours, the price of NIFTY BeES will fluctuate
in tune with the movement of Nifty 50 index.

If the NIFTY Index goes up to 6,000 in the next six months, the value of
one unit of NIFTY BeES will go up to Rs 600 or if the Nifty Index retraces
to 4,500, then the value of one unit of NIFTY BeES will be readjusted to
Rs 450 in tune with the movement of the general market

The structure of Nifty BeES is such that it does not hurt long-term
investors from the inflow and outflow of short-term investors. This is
because the Fund does not bear extra transaction cost when buying /
selling due to frequent subscriptions and redemptions.

It is traded only on the NSE (face value Rs 10) & it is India’s first ETF

It is managed by the AMC of Benchmark Mutual Fund, which is sponsored

by one Niche Financial Services Pvt. Ltd. The fund manager is Vishal
Jain. This Mutual Fund maintains other ETFs also – like, Gold, Bank,
Derivatives and others. The total average assets under management by
the Benchmark MF are Rs 1,213 crore as on 31st of August, 2009.

Rama Krishna Vadlamudi, MUMBAI. vrk_100@yahoo.co.in. Sept. 30, 2009 Page 2 of 8


Entry Load is NIL

Exit Load: With effect from August 01, 2009, Exit load (technically referred
as CDSC) (if any) of up to 1% of the redemption value charged to the unit
holder on redemption of units shall be retained by each of the Schemes in
a separate account and will be utilized for payment of commissions to
mutual fund advisors and to meet other marketing and selling expenses

It is open-ended mutual fund

For tax purposes, it’s considered as an equity-oriented mutual fund. Long-

term capital gains tax (for holdings of more than one year) is NIL.

Short-term capital gains tax (for holdings of less than one year) is 15 per
cent, plus surcharge (if any) and 3% education cess

STT is applicable for buying and selling of units of NIFTY BeES on NSE

As NIFTY BeES is bought from NSE like any share, brokerage needs to
be paid by the investor for buy/sell transactions

Dividend distributed by AMC for NIFTY BeES is exempted from Dividend

Distribution Tax (DDT). Dividend is not taxable in the hands of individual
resident Indian tax payers. Benchmark AMC declares dividends on NIFTY
BeES, now and then. The latest dividend was Rs 4.50 per unit of NIFTY
BeES paid with record date of 15.07.09. Previously dividends were Rs
5.00 (12.09.08) and Rs 8.00 (05.01.07).

NSE symbol: NIFTY BEES

NIFTY is calculated using the Free Float methodology

Fifty stocks that are part of NIFTY Index are selected based on high
degree of liquidity

Assets under management as on 31.08.2009 for NIFTY BeES: Rs 214

crore. As on September 29th, 2009; a total of 47.37 lakh units of NIFTY
BeES are issued to investors.

It is highly liquid from an individual investor’s point of view

NIFTY BeES is a passively managed fund. NIFTY BeES’s underlying will

be in proportion to the weight of the constituents of Nifty 50 index.

Rama Krishna Vadlamudi, MUMBAI. vrk_100@yahoo.co.in. Sept. 30, 2009 Page 3 of 8


Total expense ratio of NIFTY BeES is 0.50%, which is one of the lowest in
the universe of index funds managed by all mutual funds in India

Tracking error of NIFTY BeES is 0.26% annualized. It is the lowest among

all index funds. Tracking error is the difference between NIFTY BeES and
its benchmark index, that is, S&P CNX Nifty. The tracking error occurs
due to some factors, like: a small component of cash in the fund,
difference in weights between the fund and the underlying index, etc. The
tracking error of 0.26% is negligible from individual investor’s point of
view.

Trading of NIFTY BeES has been going on since its inception on NSE on
28.12.2001

All types of investors – whether retail or institutional – can invest

NIFTY BeES has been consistently outperforming (to an extent of one to

two per cent) its benchmark Nifty 50 index for several years

NIFTY BeES PERFORMANCE (as on Sep. 29th, 2009):

% RETURN 3-month 1-year 2-year 3-year 5-year Since

inception

NIFTY BeES 13.15 29.54 -0.01 12.29 24.61 22.84

Benchmark* 14.03 30.05 -0.14 11.74 23.71 -- NA --

Source: ValueResearch
* Benchmark is S&P CNX NIFTY INDEX
Returns upto 1-year are absolute & above 1-year compounded annual growth rate-CAGR

Rama Krishna Vadlamudi, MUMBAI. vrk_100@yahoo.co.in. Sept. 30, 2009 Page 4 of 8

CHART SHOWING ONE-YEAR RETURN FROM NIFTY BeES:

NIFTY BeES 1-YR RETURNS

600
500
400
Rs

300
200
100
0
10/29/2008

11/29/2008

12/29/2008
9/29/2008

1/29/2009

2/28/2009

3/29/2009

4/29/2009

5/29/2009

6/29/2009

7/29/2009

8/29/2009

9/29/2009
Source: NSE. Data as on September 29, 2009.One-year price chart.

In just 11 months, it jumped by 100%! You may not believe it, but it’s true.

CHART SHOWING ONE-YEAR VOLUMES FROM NIFTY BeES (on NSE):

NIFTY BeES 1-YR VOLUMES

5000
4500
4000
3500
Rs lakh

3000
2500
2000
1500
1000
500
0
10/29/2008

11/29/2008

12/29/2008
9/29/2008

1/29/2009

2/28/2009

3/29/2009

4/29/2009

5/29/2009

6/29/2009

7/29/2009

8/29/2009

9/29/2009

Source: NSE. Data as on September 29, 2009

Rama Krishna Vadlamudi, MUMBAI. vrk_100@yahoo.co.in. Sept. 30, 2009 Page 5 of 8

WHAT IS THE REPRSENTATION OF NIFTY BeES’ TOP 10 HOLDINGS:

Nifty BeES – Company Market

Holdings worth Rs 5 lakh
Top 10 Holdings weight % Value Rs
in NIFTY BeES will
lakh
considered as holdings
in the top 10 NIFTY Index
components
1 Reliance Industries Ltd 11.14 1 Reliance Industries Ltd 0.56
2 Infosys Technologies Ltd 7.96 2 Infosys Technologies Ltd 0.40
3 Larsen & Toubro Ltd 7.17 3 Larsen & Toubro Ltd 0.36
4 ICICI Bank Ltd 6.52 4 ICICI Bank Ltd 0.33
5 HDFC Ltd 4.85 5 HDFC Ltd 0.24
6 ITC Ltd 4.63 6 ITC Ltd 0.23
7 Bharti Airtel Ltd 4.10 7 Bharti Airtel Ltd 0.21
8 HDFC Bank Ltd 3.95 8 HDFC Bank Ltd 0.20
9 State Bank of India 3.51 9 State Bank of India 0.18
10 ONGC Ltd 3.12 10 ONGC Ltd 0.16
Total top 10 holdings 56.95 Total top 10 holdings 2.85

Data is as on Aug. 31,, 2009 Data is as on Aug. 31, 2009

Source: ValueResearch

The data on the right side of the above table gives an idea about the top holdings of an investor
who is holding NIFTY BeES units worth Rs 5 lakhs on a given day, that is, August 31st, 2009. By
buying units worth Rs 5 lakh, you’re indirectly holding Rs 0.56 lakh of RIL, Rs 0..40 lakh of
Infosys, Rs 0.36 lakh of L&T and so on.

TOP FIVE SECTORAL HOLDINGS OF NIFTY BeES:

TOP FIVE SECTORS %

80.00 71.24
70.00
60.00
% holding

50.00
40.00
30.00 22.14 21.79
20.00 11.78 8.61 6.92
10.00
0.00
Energy Financials Technology Diversified Metals Total top 5
sectors

Source: ValueResearch Data as on Aug. 31, 2009

Note: Energy-RIL, ONGC, etc; Financials-ICICI Bk, HDFC, SBI, Axis Bk, etc; Technology-Infoysy,
TCS, etc; Diversified-L&T, Grasim, etc; and Metals-Tata Steel, Sterlite Inds, Jindal S&P, etc

Rama Krishna Vadlamudi, MUMBAI. vrk_100@yahoo.co.in. Sept. 30, 2009 Page 6 of 8

BUYING/SELLING NIFTY BeES DIRECTLY
WITH THE BENCHMARK MUTUAL FUND:

An investor can buy or sell minimum 10,000 units of Nifty BeES and in multiples
thereof directly with the Benchmark Mutual Fund. This route is usually used by
High Networth Individuals (HNIs) and institutions to buy this exchange-trade
product. It is very convenient for corporates also.

Minimum Lot Size : 10,000 units

Price : In exchange for a basket of Nifty securities and cash

defined as “Creation Unit”

Eligibility : Authorised participant or large institutions

For more on this ‘Creation Unit’, HNIs and institutions can visit:
http://www.benchmarkfunds.com/creationUnit.pl?product=nb

THREE IMPORTANT RISKS:

1) MARKET RISK: The returns of this fund are linked to the movement of
stock markets in India in general. If the overall market turns adverse, then
the fund will give negative returns to investors

2) LIQUIDITY RISK: If sufficient volumes are not available on the exchange

for the product, investors may not be able to buy new units/liquidate their
holdings easily in the market and as such this investment involves liquidity
risk (for small individual investors, this is not a problem at all)

3) TRACKING ERROR RISK: The fund may not be able to invest the entire
corpus in the same proportion as in the underlying S&P CNX Nifty Index
due to certain factors such as: expenses incurred by the fund, corporate
actions, cash balances, dividend payouts, changes in the underlying index
and regulatory policies.

Rama Krishna Vadlamudi, MUMBAI. vrk_100@yahoo.co.in. Sept. 30, 2009 Page 7 of 8

MY OPINION & SUMMARY:
NIFTY BeES is a low-risk financial product (low-risk compared to individual
stocks). It provides reasonable returns with ‘below average’ risk. It is a very
simple and easy to understand product. As the risk is lower, returns from NIFTY
BeES will also be normal unlike shares which have the potential to be multi-
baggers. As the number of fund managers, mutual fund houses and number of
schemes are increasing by leaps and bounds every day, it would be difficult for
fund managers to outperform the indices (like, Nifty, Sensex, BSE-500) on a
sustained basis in the long-term. (The author does not have any solid data to
back his opinion.) Finding new stock ideas year after year is next to impossible in
these times of greater higher volatility and abounding global uncertainties.
As the NIFTY BeES represents the country’s top fifty companies on NSE through
the Nifty 50 index, it would be very easy and convenient for individual investors to
buy the stock market in its entirety without bothering much about the wild
movements in the fortunes of individual company’s performance. However, one
needs to keep in mind one’s overall asset allocation, individual’s need for liquidity
and to have a broad outlook on market dynamics, prevailing sentiment, country’s
economic situation, global factors, corporate performance, regulatory risks,
political risks, etc. By investing through NIFTY BeES, individual investors will be
relieved of the burden of poring over bulky annual reports, opaque financial
statements, analyzing quarterly/periodical results minutely and scratching one’s
head over declarations of bonus shares, dividends, rights issues, open offers,
stock splits, etc. It is a good start with 15 or 25 per cent allocation for ETFs in
one’s equity portfolio for individual investors who like passive investments.
NIFTY BeES, as of now and according to the present available information, is
much superior to other index funds* that are available to investors. (*These index
funds can only be bought directly from mutual fund houses and not through stock
exchanges; and these index funds have unreasonable tracking errors which may
dilute the overall returns in the medium/long term)

PHILIP A. FISHER:
"In the stock market, a good nervous system is more
important than a good head."

"What really counts in determining whether a stock is

cheap or overpriced in not its ratio to the current
year's earnings, but its ratio to the earnings a few
year's ahead."
P.S: For further information, please visit: www.nseindia.com, www.benchmarkfunds.com,
www.valueresearchonline.com and www.vanguard.com. The above analysis is made keeping in
mind the needs of individual investors. Mutual fund performance is subject to market risk and as
such investors should do their own due diligence before start trading in NIFTY BeES.

Rama Krishna Vadlamudi, MUMBAI. vrk_100@yahoo.co.in. Sept. 30, 2009 Page 8 of 8