What is Sensex ETF?

What is BSE Sensex Index?

BSE Sensex Index is the benchmark index that tracks the performance of portfolio of 30 top blue-chip companies that makes the Sensex. BSE Sensex is made of 30 largest companies by market capitalization. In India, Sensex and the Nifty, are the two biggest and leading market indices. This is why, the Sensex ETF is one of the most popular exchange traded fund.

You will also get BSE Sensex Index mutual fund schemes over and above the ETFs. Therefore, to invest in Sensex, either you can invest in ETF of Sensex or Index mutual fund.

How is BSE Sensex Index constructed?

BSE Sensex was launched in 1986 and has values from 1979. Sensex covers around 50% of the total market cap of all listed companies in Bombay Stock Exchange. The weights of the index constituents are based on free float market capitalization. Free float market capitalization are market capitalization of shares held by the public. This does not include the shares held by the promoters and their families, or related parties, company management and the Government.

Some of the top companies that comprises of BSE Sensex is Reliance Industries, Infosys, Titan, Asian Paints, Hindustan Unilever, ICICI Bank, Kotak Bank, NTPC and Nestle India, etc.

What are the characteristics of Sensex stocks?

• Sensex stocks are among the largest companies in India. The market cap of Sensex 30 stocks is about 112,673,819 Lakhs as on September 22, 2022.
• These 30 stocks are market leaders in the industries they are in. Therefore, these companies enjoy greater competitive advantage.
• Sensex companies are better placed to survive economic downturns compared to midsize and smaller sized companies.
• Sensex stocks are also very well researched and can always provide better visibility of returns compared to other stocks which fall in midcap or small cap segment.
• Sensex stocks also have large percentage of FII and institutional holding as a result of which they are well traded in the market and therefore, most liquid too.

How to invest in BSE Sensex?

ETF or exchange traded fund is relatively one of the most convenient way to invest in BSE Sensex. As the readers may be knowing, the ETFs do not aim to beat the return of indices but endeavour to replicate their performance. Since ETFs are passively managed mutual fund schemes, their cost is relatively lower than that of an actively traded mutual fund. Lower cost will generally result in higher returns for the same level of performance.

The NAV of ETF can be found on the website of AMFI India.

Why invest in Sensex ETFs?

• Sensex ETF can provide stability to your investment portfolio as there will be no small and mid-cap stocks in this.
• Sensex ETFs are well diversified as it has exposure to multiple sectors like Manufacturing, power, banking, Oil and Gas, Information Technology, Cement, Construction, FMCG, metals, and pharmaceuticals, etc.
• Unlike regular mutual fund investment, there is no unsystematic risk in ETF of Sensex as they replicate Sensex returns.
• Sensex ETFs are low cost investments, therefore, investment in it can translate into higher returns over the long term period.

Who should invest in Sensex ETFs?

• Investors looking for capital appreciation with lower volatility compared to the broader market.
• Investors not wanting to take much risks.
• Investors who are comfortable in taking moderately high to high risk.
• Investors who can remain invested for at least 5 years.

To invest in ETF, you need demat account. However if you do not have one, you can still invest through index mutual funds. Index funds are mutual fund schemes, which are managed exactly in the same way as ETFs.