Rama Krishna Vadlamudi, MUMBAI. www.scribd.com/vrk100 Nov. 6, 2009 Please read author’s disclaimer at the end.
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To buy an ETF, one requires a demat account and a trading accountwith a broker to buy/sell on the particular exchange where the ETF islisted/traded; whereas for buying an index fund, investor does notrequire a demat account and she can directly approach the mutualfund for buying or selling the index fund units
What are the Components of CNX Junior Nifty?
Junior Nifty BeES ETF is based on CNX Nifty Junior Index of the NSE. There are 50stocks in it. It can be said that they are the most liquid stocks after those 50 stocks thatare part of the benchmark S&P CXN Nifty of the NSE, Mumbai, India. NSE selects thesefifty stocks in CNX Nifty Junior based on market capitalization, volumes and liquidity.The stocks that appear in Nifty Junior will never appear in Nifty and vice versa. Togetherthese 100 stocks in Nifty and Junior Nifty indices are said to be the most liquid stocks inIndia. Of course, NSE constantly changes the composition removing inactive stockswhile including actively traded stocks in the index. And there are fair chances that NiftyJunior stocks move up the chain and get included in the main Nifty index. The tradedvalue for the last six months of all Junior Nifty stocks is approximately 16% of the tradedvalue of all stocks on the NSE. Impact cost for CNX Nifty Junior for a portfolio size ofRs.50 lakhs is 0.26 per cent.
Salient Features of Junior Nifty BeES
One unit of Junior NIFTY BeES is equal to one-hundredth of the value ofCNX Nifty Junior Index. On 5.11.09, Junior Nifty index had closed at9,391; whereas, Junior NIFTY BeES was quoting at Rs 94.53 on day’sclosing on NSE. The small difference (technically called tracking error)between the underlying Nifty Junior index and Junior NIFTY BeES is dueto the supply and demand factors of Junior NIFTY BeES on NSE. On5.11.09, its day’s high was Rs 94.60 and day’s low was Rs 92.05. Duringthe trading hours, the price of Junior NIFTY BeES will fluctuate in tunewith the movement of Nifty Junior index.
If the NIFTY Junior Index goes up to 13,000 in the next six months, thevalue of one unit of NIFTY BeES will go up to Rs 13 or if the Junior NiftyIndex retraces to 8,000, then the value of one unit of Junior NIFTY BeESwill be realigned to Rs 80 in tune with the movement of the market
The structure of Junior Nifty BeES is such that it does not hurt long-terminvestors from the inflow and outflow of short-term investors. This isbecause the Fund does not bear extra transaction cost when buying / selling due to frequent subscriptions and redemptions.