We all know about stock splits wherein the face value of a stock is split or reduced say from Rs.10 to Rs.5 or Re.1 or so. Since each ETF that is created is similar to individual stocks, ETFs are also open to splits of its face value. Recently, the face value of ETFs from Nippon India Mutual Fund house was split as below:
The ex-date for the splits was 19th December 2019 and the record date was 20th December 2019. The ETFs are trading at ex-rate since ex-date 19th December 2019.
What it means for investors when an ETF is split?
First, let us see what happens when there is a split in face value. As it is with individual stocks, post-split, the number of outstanding units of ETF and the market price of the ETF will change but the market value of outstanding units of the ETF and the value of your holdings in the ETF remains the same.
For example, if you were holding 10 units of Nippon India ETF GoldBees prior to the split, then the market value of your holdings would have been Rs.33,596/- at a cum-split market rate of 3359.60. Upon split of face value from 100 to 1 the number of units investors hold and the market price of the ETF will change accordingly. In Nippon India ETF GoldBees, investors who had 1 unit will be having 100 units and the market price of the ETF will reduce to Rs.33.59 (3359.60 / 100) post-split. Since originally you have 10 units, post-split you will have 1000 units in your Demat account but the value of your holdings will be the same as Rs.33,596 (1000 x 33.59).
Suppose you have 10 units of Nippon India ETF NiftyBees whose face value is split from Rs.10 to Re.1, then you will have 100 units post-split and the value of your holdings will be Rs.12925.40 (100 x 129.25).
Benefits of face value split in ETFs
Whether it is a split of the face value of an ETF or a stock, it is a positive move that helps in improving the liquidity in the stock/ETF and the reduced market price post-split makes the stock/ETF price affordable for the small investors. Especially in ETFs the fast-growing investment opportunity, providing liquidity is the foremost requirement of the time.
Further, the substantial reduction in market price aids small investors to have exposure to an otherwise high-cost asset class such as gold. This you can find from the ex-split rate of Nippon India ETF Goldbees in the above table provided. Pre-split the market price was Rs.3359.60 and it has reduced to Rs.33.59 post-split. At Rs.33.59 it is extremely attractive and definitely, it attracts more investors to invest in gold via the ETF route. However, post-split, each unit of the ETF will be approximately equal to just 1/100th of 1 gram of gold.
How to set up a Systematic Investment Plan (SIP) in ETF
Systematic Investment Plan (SIP) is a disciplined approach to investment and it is more accustomed to mutual funds especially, active funds. In ETFs, you cannot exactly set up SIP as it is traded in stock exchanges like individual stocks. You can follow the SIP type of investment by regularly investing in ETF at either fixed interval or at a fixed level of market indices.
For example, you can follow any of the following methods to set up a SIP in Nifty or any other ETF.
- Invest regularly on a fixed date say 5th of every month when you receive your pay
- Invest on every fall of 1% in Nifty
- Invest in sectoral ETF whenever there is a piece of bad news on the sector
- Invest in Nifty ETF whenever Nifty touches a technical level as per chart analysis
Since there are no ready-made SIPs available in ETF it may be difficult for us to stick to the investment plan. We tend to forget to invest or we may miss the opportunity like a fall in Nifty on a particular day because of our other priorities. So what can you do in such a case? We at Tradeplus provide set alert facility in Infini Web and Infini Mobile App to set price or event-based alerts. Suppose you want to invest in NiftyBees whenever the nifty falls by 1% you can set price alert in NiftyBees at a price calculated approximately.
Read here to know about Set Alert facility
Now the next question that arises is how can I place an order if I get the alert after market hours. You can place after market orders by using the “Aftermarket order” facility. The orders placed during off-market are entered into the system the next day once the market opens.
Read here to know about “After Market Orders”
Lack of liquidity has been cited as the main drawback of ETF investment. The initiative of the face value split of ETF units by fund houses helps in the growth of ETFs in India which is already underway. Whether the investment is done through SIP or lumpsum, ETF is a sure shotgun to achieve the goals of long term investment.