Investing In Bharat 22 Etf: Is It Worth It?

Bharat 22 ETF is an exchange-traded fund that invests in 22 companies, 19 of which are public sector companies and three are private sector firms. The fund's objective is to invest in the constituents of the underlying index in the same proportion and generate returns that closely correspond to the total returns of the underlying index. The fund has been in existence since November 2017 and is managed by ICICI Prudential Mutual Fund House. While the fund has delivered positive returns over different time periods, it has also been associated with a very high level of risk. Financial advisors have pointed out the risks of concentration in a few blue-chip stocks within the fund, and it has been noted that the fund's performance may differ from that of the underlying index due to tracking errors. Therefore, it is essential for investors to carefully evaluate the risks and historical performance before making any investment decisions.

Historical performance

The BHARAT 22 ETF was launched on November 15 or 24, 2017, and as of December 2024, it has delivered returns of 41.31% (1-year), 37.59% (3-year), 26.3% or 26.43% (5-year), and 16.98% or 12.64% since its inception. The fund's ability to deliver consistent returns is in line with most funds in its category, and its ability to control losses in a falling market is above average.

As of December 2024, the BHARAT 22 ETF's current Net Asset Value (NAV) is Rs 114.16 or Rs 112.84 for the Growth option of its Regular plan. The fund's Assets Under Management (AUM) are Rs 19,159.83 Cr or Rs 19,159.8281 crore as of September 30, 2024. The expense ratio is 0.07%, and the fund has no exit load.

Compared to fixed income options, the BHARAT 22 ETF has delivered gains that beat the inflation rate over a five-year investment period. However, investors should be prepared for ups and downs in their investment value. The fund is considered Very High risk according to SEBI's Riskometer.

Investment strategy

Bharat 22 ETF is an exchange-traded fund (ETF) that was launched on 15 or 17 November 2017. It is a passively managed fund that aims to replicate the portfolio of its chosen benchmark index, the BSE Bharat 22 Index. The fund's objective is to invest in the constituents of the underlying index in the same proportion and provide returns that closely correspond to the total returns of the index.

The ETF has a very high-risk level and is suitable for investors who can tolerate a high level of risk and volatility. It is mandated to invest at least 80% of its assets in large-cap stocks, with the remaining up to 20% in debt instruments. As of September 30, 2024, the fund had invested 99.93% in equity and 0.07% in cash and cash equivalents. The top holdings of the fund include Power Grid Corporation of India and National Aluminium Company.

The fund's performance has been mixed, with a 1-year return of 37.59%-37.88% and a 5-year return of 26.30%-26.43%. Since its launch, the fund has lost 8.51%, underperforming large-cap funds and the index. The fund's expense ratio is 0.05%-0.07%, which is considered reasonable compared to other mutual fund schemes.

When considering whether to invest in the Bharat 22 ETF, it is important to keep in mind that the fund was created to serve the government's disinvestment programme rather than investment needs. As a result, its portfolio may be rebalanced according to the government's divestment goals, which could impact its performance. Additionally, the fund's poor performance and the availability of more diversified ETFs with lower expense ratios and tracking errors make it a less attractive investment option for those seeking long-term, diversified portfolios.

For investors looking for exposure to large-cap stocks, there are alternative options such as investing directly in blue-chip stocks or through a diversified mutual fund. It is always recommended to consult with a financial advisor to determine if an investment aligns with your financial goals and risk tolerance.

Risk level

When considering investing in the BHARAT 22 ETF, it is important to understand the associated risk level. According to SEBI's Riskometer, the BHARAT 22 ETF falls under the "Very High Risk" category. This means that there is a significant chance of losing one's investment in this fund.

The BHARAT 22 ETF is an open-ended large-cap equity scheme that was launched in November 2017. The fund's objective is to replicate the returns of its chosen benchmark index, the BSE Bharat 22 Index, by investing in the same proportion of constituents. As of September 2023, the fund had invested 99.93% in equity and 0.07% in cash and cash equivalents.

The fund's performance has been positive, with returns outperforming the category average. As of October 2023, the fund had delivered 12.64% returns since its inception. The 1-year, 3-year, and 5-year returns were also impressive at 37.88%, 36.43%, and 26.43% respectively.

However, it is important to remember that mutual funds are subject to market risk, and past performance does not guarantee future results. The risk level of the BHARAT 22 ETF indicates that investors could potentially lose a significant portion of their investment. Therefore, it is recommended to consult a financial advisor and carefully consider one's risk tolerance before investing in this or any other mutual fund.

Tax implications

Bharat 22 ETF is a mutual fund scheme that falls under the Equity: Large Cap category of funds. The tax implications for this scheme are as follows:

• Short-term capital gains (STCG): If the units are redeemed within 1 year of investment, gains are taxed at a rate of 15% as STCG.
• Long-term capital gains (LTCG): For units redeemed after 1 year of investment, gains of up to Rs. 1 lakh accruing from those units in a financial year are exempt from tax. Gains exceeding Rs. 1 lakh are taxed at a rate of 10% as LTCG.
• Dividend Distribution Tax (DDT): Dividend income from this fund is added to the investor's income and taxed according to their respective tax slabs. If an investor's dividend income exceeds Rs. 5,000 in a financial year, the fund house deducts a TDS of 10% on such income before distribution.

It is important to note that the tax treatment for Bharat 22 ETF is similar to other equity mutual fund schemes in India. Additionally, there is no exit load associated with this fund, meaning there is no charge for mutual fund redemptions.

Discounts and returns

Bharat 22 ETF is a mutual fund scheme from ICICI Prudential Mutual Fund. The fund was launched on 15 November 2017 and has an expense ratio of 0.07%, which is quite reasonable compared to other mutual fund schemes. The fund has no exit load. The minimum investment required is Rs 5000 and the minimum additional investment is Rs 1.

The Bharat 22 ETF tracks the Bharat 22 Index, which comprises 22 companies—19 public sector undertakings (PSUs) and three private sector firms. The ETF has lost 8.51% since its launch on 17 November 2017. So, Rs 100 invested in November 2017 would be worth Rs 91.49.

The ETF offers a 5% discount on the reference price, which is the volume-weighted average price of its constituents on the offer date. However, investors should note that the fund has underperformed large-cap funds and the index in the long term. The 1-year, 3-year and 5-year returns of this fund were 37.88%, 36.43% and 26.43% respectively. The trailing returns over different time periods are: 41.31% (1yr), 37.59% (3yr), 26.3% (5yr) and 16.98% (since launch).

According to S. Naren, chief investment officer of ICICI Prudential AMC, the product is suitable for long-term investors looking to partake in the India growth story. He said that the constituents of ICICI Prudential-managed Bharat 22 ETFs are available at very attractive valuations given their lower P/E and offer relatively better earnings growth and higher dividend yield in comparison to Nifty 50/S&P BSE Sensex.

However, financial advisors have pointed out the risks of concentration with the three blue-chip stocks. They believe that investors are better off looking at more diversified ETFs based on the Nifty and Nifty Next 50 with low expense ratios and low tracking errors against their respective indices.

Frequently asked questions