Which is better, SBI ETF Nifty 50 or Nippon India ETF NIFTY BeES?

 

     Choosing between the SBI ETF Nifty 50 and the Nippon India ETF NIFTY BeES is a decision that many investors face when seeking exposure to the Nifty 50 index. Both ETFs are designed to replicate the performance of this index, which represents the 50 largest and most liquid companies listed on the National Stock Exchange (NSE) of India. The Nifty 50 index is often considered a barometer of the Indian economy, and investing in ETFs that track this index allows investors to participate in the growth of the country’s top companies. However, despite their shared objective, these two ETFs have distinct characteristics that can influence an investor’s decision. In this analysis, we will delve into various aspects such as expense ratios, tracking error, liquidity, the reputation of the fund house, dividend policies, tax implications, and overall performance to determine which ETF might be the better choice.

 

1. Expense ratio

 

    The expense ratio is one of the most critical factors when selecting an ETF. It represents the annual cost of managing the fund, expressed as a percentage of the fund's assets under management (AUM). A lower expense ratio is generally preferable, as it means that a larger portion of the returns is passed on to the investor.

 

    SBI ETF Nifty 50: The SBI ETF Nifty 50 is renowned for having one of the lowest expense ratios in the Indian ETF market. With an expense ratio of approximately 0.05%, this ETF is highly cost-effective, particularly for long-term investors. The low expense ratio allows investors to retain more of their returns, making it a more attractive option for those who prioritize cost efficiency.

 

    Nippon India ETF NIFTY BeES: On the other hand, the Nippon India ETF NIFTY BeES has an expense ratio of around 0.08%. While this is still low compared to many other investment options, it is slightly higher than that of the SBI ETF Nifty 50. Over a long investment horizon, even small differences in expense ratios can compound, leading to a noticeable impact on the overall returns.

 

Verdict:  The SBI ETF Nifty 50 has a clear advantage in terms of the expense ratio, making it the better choice for cost-conscious investors.

 

2. Tracking error

 

    Tracking error measures the deviation of the ETF's performance from its underlying index. A lower tracking error indicates that the ETF is more accurately replicating the index's returns. Investors typically prefer ETFs with lower tracking errors because they provide a more reliable representation of the index.

 

    SBI ETF Nifty 50: This ETF has consistently demonstrated a low tracking error, which is a testament to its effective fund management and the ability to closely replicate the Nifty 50 index. The low tracking error ensures that investors' returns are closely aligned with the performance of the index.

 

   Nippon India ETF NIFTY BeES: Nippon India ETF NIFTY BeES also exhibits a low tracking error, but it is marginally higher than that of the SBI ETF Nifty 50. This slight difference can be attributed to various factors, including the fund's expense ratio and management practices. Although the tracking error is minimal, it may still be a consideration for investors seeking the closest possible replication of the index.

 

Verdict:  The SBI ETF Nifty 50 holds a slight edge in this category due to its marginally lower tracking error.

 

3. Liquidity

 

     Liquidity is a crucial factor in ETF investing, as it determines how easily an investor can buy or sell units of the ETF without significantly affecting its price. Higher liquidity ensures that investors can enter or exit positions with minimal impact on the market price, which is particularly important for those trading in large volumes.

 

    SBI ETF Nifty 50: This ETF has seen a substantial increase in liquidity over the past few years, driven by its growing popularity among both retail and institutional investors. The higher liquidity makes it easier to trade large volumes without causing significant price fluctuations, which is beneficial for investors who prioritize smooth execution.

 

     Nippon India ETF NIFTY BeES: Nippon India ETF NIFTY BeES is one of the oldest and most established ETFs in India, and it has historically been one of the most liquid ETFs in the market. The long-standing presence and wide acceptance of this ETF contribute to its strong liquidity profile. As a result, investors can easily buy or sell units without facing issues related to price impact.

 

Verdict:  The Nippon India ETF NIFTY BeES has a slight advantage in terms of liquidity, making it a preferred choice for investors who value ease of trading.

 

4. Fund house reputation

 

    The reputation of the fund house managing the ETF is an important consideration, as it reflects the trustworthiness and reliability of the institution. A reputable fund house is more likely to provide effective management, transparent practices, and good customer service.

 

   SBI Mutual Fund: SBI Mutual Fund, backed by the State Bank of India, is one of the largest and most trusted financial institutions in India. The SBI brand is synonymous with reliability and trust, which is a significant factor for many investors. The strong backing of SBI provides a sense of security, making the SBI ETF Nifty 50 an appealing option for those who prioritize the stability of the fund house.

 

   Nippon India Mutual Fund: Nippon India Mutual Fund, formerly known as Reliance Mutual Fund, is also a well-established player in the Indian mutual fund industry. It has a long history of managing a wide range of investment products, including ETFs. The transition from Reliance to Nippon Life Insurance has further strengthened its position, making it a reputable and trusted name in the market.

 

Verdict:  Both fund houses have solid reputations, but the SBI ETF Nifty 50 may have a slight edge due to the stronger brand recognition and trust associated with SBI.

 

5. Dividend policies

 

     ETFs may distribute dividends received from the underlying stocks to the investors. The dividend policy can impact the overall returns, especially for income-focused investors.

 

SBI ETF Nifty 50:  This ETF typically distributes dividends received from the constituent companies of the Nifty 50 index. The dividends are paid out to the investors, providing an additional source of income. The dividend yields, however, may vary depending on the performance of the underlying companies.

 

Nippon India ETF NIFTY BeES:  Similar to SBI, Nippon India ETF NIFTY BeES also distributes dividends to its investors. The frequency and amount of dividend payouts are influenced by the dividend policies of the Nifty 50 companies and the ETF’s dividend policy.

 

Verdict:  Both ETFs have similar dividend policies, and there is no significant difference between them in this regard. Investors looking for regular income may choose either ETF based on their preference.

 

6. Tax implications

 

    Tax considerations are crucial for investors, as they directly impact the net returns. ETFs are subject to capital gains tax, and the tax treatment may vary based on the holding period.

 

SBI ETF Nifty 50:  The tax implications for SBI ETF Nifty 50 are similar to other equity-oriented mutual funds in India. Long-term capital gains (LTCG) are applicable if the holding period exceeds one year, with a tax rate of 10% on gains exceeding ₹1 lakh. Short-term capital gains (STCG) are taxed at 15% if the holding period is less than one year.

 

Nippon India ETF NIFTY BeES:  The tax treatment for Nippon India ETF NIFTY BeES is identical to that of the SBI ETF Nifty 50. The same rates for LTCG and STCG apply, making the tax implications neutral between the two ETFs.

 

Verdict:  There is no difference between the two ETFs in terms of tax implications, as both are subject to the same tax rules.

 

7. Overall performance

 

     The overall performance of an ETF is the ultimate measure of its effectiveness in replicating the index and delivering returns to investors. While past performance is not a guarantee of future results, it provides insights into the ETF's ability to achieve its objectives.

 

SBI ETF Nifty 50:  Due to its lower expense ratio and slightly better tracking accuracy, the SBI ETF Nifty 50 has historically delivered returns that are very close to the Nifty 50 index. The combination of low costs and efficient management makes it a strong performer, particularly for long-term investors.

 

Nippon India ETF NIFTY BeES:  Nippon India ETF NIFTY BeES has also performed well, delivering returns that closely mirror the Nifty 50 index. However, the slightly higher expense ratio and tracking error may result in marginally lower returns compared to the SBI ETF Nifty 50 over a long investment horizon.

 

Verdict:  The SBI ETF Nifty 50 may have a slight advantage in overall performance, especially for long-term investors who are looking to minimize costs and maximize returns.

 

Conclusion

 

     Both the SBI ETF Nifty 50 and the Nippon India ETF NIFTY BeES are excellent options for investors seeking exposure to the Nifty 50 index. They each have their strengths, and the decision between the two will ultimately depend on the investor's priorities.

 

    The SBI ETF Nifty 50 stands out with its lower expense ratio, marginally better tracking error, and the strong reputation of the SBI brand. These factors make it an attractive choice for cost-conscious, long-term investors who want to closely replicate the performance of the Nifty 50 index. The slightly better performance and lower costs can contribute to higher net returns over time, making it a suitable option for those with a long-term investment horizon.

 

    On the other hand, the Nippon India ETF NIFTY BeES excels in liquidity, making it a preferred option for investors who prioritize ease of trading and require a more liquid instrument. Its established presence in the market and the reputation of Nippon India Mutual Fund add to its appeal.

 

     In conclusion, if minimizing costs and closely tracking the index are your primary concerns, the SBI ETF Nifty 50 may be the better option. However, if liquidity and ease of trading are more important to you, then the Nippon India ETF NIFTY BeES could be the superior choice. Both ETFs offer a reliable and effective way to gain exposure to the Nifty 50 index, and either one can be a valuable addition to a diversified investment portfolio.