HDFC Banking ETF NFO Detailed Analysis
HDFC Asset Management Company has come up with the idea of launching a completely new ETF named HDFC Banking ETF. This New Fund Offer/NFO would be available to the public from 10th August 2020 to 14th August 2020.
When the entire banking industry is suffering from the crisis of NPA, is it a good time to come with a Banking ETF NFO? At present, the banks’ loan books are totally stressed with a whopping amount of NPA along with the unprecedented stretching of COVID 19. This might further worsen the bank’s financials.
But the experts believe that the Indian Banking industry has the ability to turn around by overcoming the stress of NPA followed by strong demands and resilient regulations. So, this depression is not permanent and is bound to diminish in the coming future.
One also must not forget that due to many global and local factors the banking stocks are trading at a very low price, that might help the HDFC Mutual Fund to collect funds at a very low average cost of holdings of stocks of the ETF portfolio.
What is an ETF?
ETF or Exchange Traded Fund is a passively managed index fund that tracks the indices like Nifty or Sensex.ETFs are traded like stocks in the stock exchanges.
Exchange Traded Funds primarily invest in a portfolio of securities that replicates an index or underlying assets. This means ETF primarily invests and follow the price movements of underlying assets such as different commodities, precious metals like gold, stocks, currencies, and options.
The benefits of investing in ETF is that it is a very low expensed product being a passively managed product. Further, it tracks the performance of the underlying assets. So, ETF reacts exactly in the same direction of the price movement of the securities/assets.
To know more about ETF, you may read the below article
Features of HDFC Banking ETF NFO
This ETF is going to be managed by the Fund Manager Mr Krishan Kumar Daga. To apply for subscription to this NFO one needs to have a Demat account, unlike mutual funds.
Now let’s see what are the top features of this ETF:
NFO Subscription Period: The HDFC Banking NFO is open for subscription from tomorrow i.e. 10.08.2020 and will open till 14.08.2020.
NFO Category: The HDFC Banking NFO is an open-ended Exchange Traded Scheme that replicates or tracks the Nifty Banking Index. This means that this ETF would track/follow the price movement of its underlying asset which is the Nifty Banking Index.
Minimum Investment: The permissible minimum investment for this NFO is Rs.5000/- only and thereafter in multiples of Re.1.
Risk profile: This NFO has been categorized as the High-Risk scheme.
Investment Objectives: The investment objective of this scheme is to deliver the returns before expenses that closely monitors total returns of its underlying assets or securities i.e. Nifty Bank Index subject to the tracking errors.
Asset Allocation: The scheme’s portfolio will invest in Securities covered by Nifty Bank index from a minimum 95% to maximum 100%. Whereas the maximum allocation in the Debt Securities & Money Market Instruments is 5%.
Investment Strategy: HDFC Banking ETF would invest in stocks comprising the underlying index and endeavour to track the benchmark index. The Fund may also invest in debt & money market instruments, in compliance with regulations to meet liquidity and expense requirements.
HDFC Banking ETF endeavours to invest in stocks forming part of the underlying index in the same ratio as per the index to the extent possible and to that extent follows a passive investment strategy, except to the extent of meeting liquidity and expense requirements.
Benchmark Index: The HDFC Banking ETF will be benchmarked against the NIFTY Bank Index (Total Returns Index). Like Mutual funds, this ETF will be listed as an Exchange Traded Funds in BSE and NSE.
Who can invest in HDFC Banking ETF NFO?
The following persons are eligible to invest in this NFO:
- Resident adult individuals either singly or jointly (not exceeding three) or on an anyone or Survivor basis;
- Karta of Hindu Undivided Family (HUF);
- Minor (as the first and the sole holder only) through a natural guardian
- Partnership Firms & Limited Liability Partnerships (LLPs);
- Companies, Bodies Corporate, Public Sector Undertakings, Association of Persons or bodies of individuals and societies registered under the Societies Registration Act, 1860, Co-operative Societies registered under the Co-operative Societies Act, 1912, One Person Company;
- Banks & Financial Institutions;
- Mutual Funds/ Alternative Investment Funds registered with SEBI;
- Religious and Charitable Trusts,
- Non-resident Indians (NRIs)/Persons of Indian Origin residing abroad (PIO)/ Overseas Citizen of India (OCI) on repatriation basis or on a non-repatriation basis;
- Foreign Portfolio Investors (FPI) registered with SEBI in accordance with applicable laws;
What are the stocks that form the Nifty Banking Index?
Basically the portfolio of Nifty Banking Index consists of the large-cap index with approx exposure of 96.30% to large-cap companies.
Since the HDFC Banking ETF would replicate the performance of the Nifty Banking index, so before investing one should know the existing exposure to individual stocks.
| Stock | Weightage(%) |
| HDFC Bank | 26.7 |
| ICICI Bank | 18.7 |
| Kotak Mahindra Bank | 16.7 |
| AXIS Bank | 14.8 |
| State Bank of India | 11.1 |
| Indusind Bank | 4.8 |
| Bandhan Bank | 2.1 |
| Federal Bank | 1.6 |
| RBL Bank | 1.2 |
| Bank of Baroda | 0.9 |
| IDFC First Bank | 0.8 |
| Punjab National Bank | 0.6 |
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Key factors to invest in HDFC Banking ETF NFO
HDFC Banking ETF invests in 12 most liquid banking stocks listed in NSE.
This ETF aims to target returns as the NIFTY Bank Index by investing in the banking stocks as the same proportion of the index.
The index has outperformed broad market indices in 14 out of the last 20 financial years.
It will not be prudent enough to judge the whole banking industry being hammered by the COVID 19 pandemic for the last couple of months followed by the moratorium up to August 2020.
When the whole world’s economy would come out of this pandemic phase, the status of the banking sectors is expected to grow rapidly driven by huge demands from different sectors.
Risk factors in HDFC Banking ETF
The Indian banking sector is already poised with a huge amount of NPA. Further, it is expected to grow to a maximum level at the end of this financial year as confirmed by the R.B.I. In that scenario how much this Banking ETF would help investors in terms of earning is a million-dollar question.
Secondly, the gloomy phase of COVID 19 has hit hard the medium to small scale industry to a large extent. Many sectors have to be shut down so far. No one exactly knows when the whole world get rid of this and we would land up to the previous normal situation.
Thirdly, there are already a few banking ETFs available in the market. Their performance so far has not been so satisfactory. So, adding a new ETF to the list may not work very well that may catch investors eyes.
This banking ETF is going to work like a sectoral fund. We have already seen in the past that sectoral funds are very much risky and if the whole banking industry fails, your investment is also going to be hampered due to non-diversification.
Who should invest in HDFC Banking ETF?
Investors who have high-risk tolerance may ideally invest in this ETF. Investment in this ETF must be held at least for the next 6 to 8 years would turn out to be a good option for long term wealth creation.
But the existing investors of the Banking ETF may think once again whether their risk appetite permits investing an additional amount in the banking ETF.
The overall portfolio allocation to the Banking ETF must not exceed 5% as per the financial experts’ advice.
Also, an investor must keep in mind that right now there is an opportunity to invest in the banking stocks at a very cheap price, though gaining momentum for last few weeks but still, all the stocks are cheaper than in 2019.
