Nifty BeES, India's first exchange-traded fund (2001)
Nifty BeES (Nifty Benchmark Exchange-Traded Scheme), launched on 28 December 2001 by Benchmark Mutual Fund on the National Stock Exchange of India, was the first exchange-traded fund in India and the first equity-index ETF in Asia. It tracked the Nifty 50 index, with each unit representing one-tenth of the Nifty 50 index value, and was listed and continuously traded on the NSE during market hours at prices close to its net asset value. The launch of Nifty BeES preceded any mainland Chinese or Japanese equity ETF and inaugurated passive index investing as a viable instrument for Indian retail, institutional, and provident fund investors.
Historical context
Exchange-traded funds as an investment structure originated in the United States with the launch of the Standard and Poor’s Depositary Receipt (SPDR), commonly called “Spider”, on the American Stock Exchange on 29 January 1993. The ETF structure combined the diversification of a mutual fund with the intraday tradability and price transparency of a stock. By the late 1990s, ETFs had attracted significant institutional and retail assets in the US and had begun to spread to other markets.
In India, conventional open-end index mutual funds existed from the late 1990s (notably the UTI Master Index Fund launched in 1998), but they operated on the traditional end-of-day NAV pricing model, units could only be bought or sold at the next-day NAV and only through the AMC’s transaction platform. There was no mechanism for intraday trading of an index-tracking vehicle or for market makers to provide continuous two-way quotes.
Benchmark Mutual Fund
Benchmark Mutual Fund was established specifically to pursue passive and rules-based investment strategies in India, at a time when such approaches were considered unusual in a market dominated by active management. The fund was co-founded by Rajan Mehta and Sanjiv Shah, who had researched the global ETF market and sought to introduce the product in India. NSE, as the index owner of the Nifty 50, was a key partner and provided the index licensing and market infrastructure support for the listing.
The Securities and Exchange Board of India classified Nifty BeES as a mutual fund scheme and brought it within the regulatory framework of the SEBI (Mutual Funds) Regulations, 1996, adapted to accommodate the ETF’s listed structure and creation/redemption mechanism.
Structure and mechanics
Nifty BeES was structured as an open-end index scheme that could be purchased and sold in two ways:
Secondary market trading: Any investor with a demat account could buy or sell Nifty BeES units on the NSE during trading hours, at the market price quoted by authorised market makers, as they would buy or sell any listed stock.
Creation and redemption in kind: Authorised participants (large institutional investors) could create new BeES units by delivering a basket of Nifty 50 constituent stocks in the index’s proportions, or redeem existing BeES units in exchange for the constituent stock basket. This in-kind mechanism kept the market price of BeES units closely tracking the intraday NAV.
The initial unit price was set at approximately Rs 100 for a one-tenth Nifty equivalent. (As the Nifty 50 has risen from approximately 1,000 in 2001 to over 22,000 by 2024, the BeES unit price has risen proportionally, with no splits, making the price a direct multiple of the index level divided by ten.)
Investor significance and early adoption
Initial trading volumes in Nifty BeES were modest, reflecting the limited awareness of ETF structures among Indian retail investors and the constraint of requiring a demat account, which fewer than 10 million Indians held in 2001. The primary early buyers were institutional investors, foreign institutional investors (FIIs), and sophisticated domestic traders who used BeES as a cost-efficient substitute for Nifty 50 futures for non-leveraged equity exposure.
The instrument also attracted interest from provident fund trusts and other long-term institutional investors that were constrained from buying individual stocks but could hold SEBI-registered mutual fund units. The ETF structure offered lower expense ratios than active funds and full intraday liquidity that fixed-price NAV schemes did not provide.
Over the subsequent years, as demat account penetration grew and awareness of passive investing increased, Nifty BeES grew into one of the most liquid ETF instruments in India. Its AUM exceeded Rs 20,000 crore within a decade of launch and continued to grow as EPFO (Employees’ Provident Fund Organisation) began mandatory equity allocations into Nifty 50 ETFs from 2015.
Regulatory framework for ETFs
SEBI progressively updated its regulatory framework to accommodate ETFs following the Nifty BeES launch. Key provisions included:
- Mandating that ETFs maintain market makers to ensure liquidity and price efficiency.
- Requiring disclosure of portfolio holdings daily (as opposed to the monthly disclosure for conventional mutual fund schemes).
- Setting maximum tracking error limits to ensure that ETF NAVs closely followed the benchmark index.
- Specifying permitted in-kind creation and redemption mechanics and authorised participant eligibility.
The success of Nifty BeES motivated Benchmark and other AMCs to launch additional ETFs tracking sectoral indices (banking, pharmaceutical, technology), gold (Gold BeES, launched 2007), and international indices. By 2024, the Indian ETF market had grown to encompass over 200 listed ETF instruments with aggregate AUM exceeding Rs 7 lakh crore, including the largest equity ETF pools managed by SBI, HDFC, and UTI AMCs for EPFO and other provident fund mandates.
Acquisition by Goldman Sachs and subsequent transfers
Benchmark Mutual Fund was acquired by Goldman Sachs Asset Management in 2011. The Nifty BeES and other Benchmark products were rebranded as Goldman Sachs ETFs. In 2015, Goldman Sachs India’s ETF business was acquired by Reliance Mutual Fund (now Nippon India Mutual Fund), and Nifty BeES became part of the Reliance/Nippon India product family. Following the Nippon Life acquisition of Reliance AMC in 2019, Nifty BeES continued under the Nippon India Mutual Fund brand. The fund’s custodian and structural mechanics remained unchanged through these ownership transitions.
Key dates
| Date | Event |
|---|---|
| 1993 | First US ETF (SPDR) launched on AMEX |
| 1998 | UTI Master Index Fund: India’s first index fund |
| 28 December 2001 | Nifty BeES launched by Benchmark Mutual Fund on NSE |
| 2007 | Gold BeES launched; first commodity ETF in India |
| 2011 | Benchmark AMC acquired by Goldman Sachs |
| 2015 | Reliance AMC acquires Goldman Sachs India ETF business |
| 2019 | Nippon Life acquires Reliance AMC; BeES continues under Nippon India brand |