1. 1
Mutual Fund Scheme Analysis December 28, 2012
GS Junior BeES - A Perspective:
Relative performance of GS Junior BeES, CNX Nifty Junior Index and Key benchmark Indices:
Note: Trailing Returns up to 1 year are absolute and over 1 year are CAGR. NAV/index values are as on Dec 26, 2012.
Key takeaways:
GS Junior BeES and its corresponding benchmark - CNX Nifty Junior Index have been the outperformers
among broad market equity indices in most of time frames and market cycles.
GS Junior BeES is an Equity ETF, tracks CNX Nifty Junior Index as a benchmark which consists of next rung
of 50 most liquid stocks after S&P CNX Nifty.
GS Junior BeES has the lowest tracking Error in Equity ETFs category.
CNX Nifty Junior Index often acts as an incubator for the stocks eligible for S&P CNX Nifty as most of the
stocks included in S&P CNX Nifty are from CNX Nifty Junior Index.
Combined investment strategy of allocating into Nifty and Nifty Junior together will make a portfolio
calibrated as both indices constitute frontline, highly liquid and growth oriented stocks. GS Junior BeES is
suited for long term investors who want to get higher returns than that of Nifty with slightly higher risk.
GS Junior BeES Retail Research

2. 2
Mutual Fund Scheme Analysis contd…
Rationale behind investing in an Index:
Investing in an index is considered as efficient investment option as the index includes large actively traded
stocks from diversified and performing industries.
Index investors take exposure to segments of markets and also entire markets via indexes.
Indices are revamped periodically representing the changes in the importance of sectors and growth cycle
of stocks. The world changes, so the index should change.
Investors benefit out of these changes as they need not take a call on entering or exiting a particular sector
or stock. No attempt at forecasts, analysis and timing markets. The objective is to earn the market rate of
return.
Asset allocation can be logically practiced with indexes as relative to buying individual stocks.
Actions of large numbers of active investors set stock prices & index investors benefit from this at a low
cost.
Rationale behind investing in GS Junior BeES:
GS Junior BeES gives a chance to,
Participate in the next rung of 50 most liquid, emerging stocks after S&P CNX Nifty large cap stocks which
will ride on growth in Indian economy,
Incur low cost in terms of expenses of scheme (compared to a diversified fund) or lower transaction costs
(in the case of direct equity requiring frequent reshuffling),
Go in for SIP and take advantage of volatility in the markets to arrive at a lower entry level,
Avoid possibility of underperforming the benchmark,
Avoid the need of constantly monitoring and reviewing portfolio.
GS Junior BeES Retail Research

3. 3
Mutual Fund Scheme Analysis contd…
What are ETFs? Exchange-Traded Funds (ETFs) are passively managed funds investing in the securities
comprising an index in a proportion which the securities are present in that index. They are listed and traded on
stock exchanges, thus they can be bought and sold on the real time basis like equity shares.
They are preferred investment options among investors for their uniqueness of getting access to broader market
indices, diversified investment approach, low cost structure and transparency.
What are passively managed Mutual Funds? Passively managed funds are mutual fund schemes that are
designed to match the returns on a particular stock market index. They do simply follow the index, construct the
portfolio in proportion to the index constituents and generate the return in line with the index.
Index funds and ETFs are the two types of passively managed funds.
The other type of mutual funds are called as actively managed mutual funds which are managed actively by the
fund managers. Unlike passively managed funds, actively managed funds are mandated to outperform the
respective benchmarks by using the skills set of the fund managers.
Index funds and ETFs vary from each other mainly in terms of tradability on the exchanges. ETFs are listed on
the stock exchanges and traded in the real time basis like equity shares while the Index funds are not listed on
any exchanges whose NAVs are calculated and declared once in a day like other normal mutual funds.
In domestic front, Indian mutual fund companies offer variety of ETFs that belonging to different asset classes,
sectors and regions.
Suitability: ETFs are suited for conservative investors who want to follow and are willing to get returns in line
with index returns. First time investors who wish to enter into equity market, can consider opting the index ETF
route.
Investing through staggered investment mode like DIY SIP will further help them to accumulate cost averaging
units over periods.
However, Investors have to own a demat account and a broker’s account to participate in the investment
process of ETF transaction.
GS Junior BeES Retail Research

4. 4
Mutual Fund Scheme Analysis contd…
Goldman Sachs Nifty Junior Exchange Traded Scheme (GS Junior BeES)
Prologue: GS Junior BeES is an Equity Exchange Traded Fund tracking CNX Nifty Junior Index as a benchmark
which consists of next rung of 50 most liquid stocks after S&P CNX Nifty. The stocks in the CNX Nifty Junior Index
are next 50 large, liquid stocks in India which are smaller and riskier than Nifty constituents and having potential
to generate higher returns compared to Nifty over long run.
Investment objective: The investment objective of GS Junior BeES is to provide returns that, before expenses,
closely correspond to the returns of securities as represented by CNX Nifty Junior Index. However, the
performance of scheme may differ from that of underlying index due to tracking error.
Investment pattern:
Basic facts:
Tracks the CNX Nifty Junior Index and priced at 1/100th of the CNX Nifty Junior Index.
Combination of a share and a mutual fund unit.
Listed and traded on the capital market segment of NSE.
Minimum lot-size for real-time in-kind creation / redemption with the fund is 16,000 units and in multiples
thereof.
Minimum lot-size to buy/sell on NSE is 1 unit and in multiples thereof.
Options: the scheme offers only growth option.
Units of the scheme will be issued/repurchased and traded compulsorily in demat form.
GS Junior BeES Retail Research

5. 5
Mutual Fund Scheme Analysis contd…
.
CNX Nifty Junior Index (benchmark of GS Junior BeES):
CNX Nifty Junior was introduced on January 1, 1997, with base date and base value being November 03,
1996 and 1000 respectively and a base capital of 0.43 trillion.
The next rung of liquid securities after S&P CNX Nifty is the CNX Nifty Junior.
S&P CNX Nifty and the CNX Nifty Junior make up the 100 most liquid stocks in India.
Only companies having a high degree of liquidity defined in terms Impact Cost are included as Constituents
of the Index.
The CNX Nifty Junior Index represents about 11.33% of the free float market capitalization of the stocks
listed on NSE as on September 28, 2012.
The total traded value for the last six months ending September 2012 of all index constituents is
approximately 14.81 % of the traded value of all stocks on NSE.
Impact cost for CNX Nifty Junior is 0.36%.
CNX Nifty Junior is computed using market capitalisation weighted method, wherein the level of the index
reflects the total market value of all the stocks in the index relative to a particular base period. The
method also takes into account constituent changes in the index and importantly corporate actions such as
stock splits, rights, new issue of shares etc without affecting the index value.
Rationale behind the Strategy of pooling the S&P CNX Nifty and the CNX Nifty Junior together:
CNX Nifty Junior is an index built out of the next 50 large, liquid stocks in India. It is not as liquid as the S&P CNX
Nifty, which implies that the information in the S&P CNX Nifty Junior is not as noise-free as that of the S&P CNX
Nifty.
It may be useful to think of the S&P CNX Nifty and the CNX Nifty Junior as making up the 100 most liquid stocks
in India. S&P CNX Nifty is the front line blue-chips, large and highly liquid stocks. The CNX Nifty Junior is the
second rung of growth stocks, which are not as established as those in the S&P CNX Nifty.
GS Junior BeES Retail Research

6. 6
Mutual Fund Scheme Analysis contd…
.
CNX Nifty Junior can be viewed as an incubator where young growth stocks are found.
Most of the stocks included in S&P CNX Nifty are from CNX Nifty Junior but this is not true other way around,
means excluded stocks from the S&P CNX Nifty very rarely go into CNX Nifty Junior at the time of change.
Almost 80% of the stocks entering the Nifty over a ten year period come from the 50 stocks just below the Nifty
at the beginning of the decade.
As with the S&P CNX Nifty, stocks in the CNX Nifty Junior are filtered for liquidity, so they are the most liquid of
the stocks excluded from the S&P CNX Nifty. Buying and selling the entire CNX Nifty Junior as a portfolio is
feasible. The maintenance of the S&P CNX Nifty and the CNX Nifty Junior are synchronised so that the two
indices will always be disjoint sets; i.e. a stock will never appear in both indices at the same time. Hence it is
always meaningful to pool the S&P CNX Nifty and the CNX Nifty Junior into a composite 100 stock index or
portfolio. The below chart shows the above average performance of the ‘Nifty+Nifty Junior’ over years
compared to just the Nifty or the Sensex.
Comparative performance of Nifty + Nifty Junior over periods :
150.00 Sensex Nifty CNX Midcap CNX Nifty Junior S&P CNX 500 Nifty + CNX Nifty Junior
100.00
50.00
0.00
-50.00
-100.00
2004 2005 2006 2007 2008 2009 2010 2011
GS Junior BeES Retail Research

7. 7
Mutual Fund Scheme Analysis contd…
.
Historical performance of CNX Nifty Junior Index:
The performance of CNX Nifty Junior has been notable since its launch. The Index has been the outperformer
among broad market equity indices in most of time frames and market cycles.
The index has outperformed other broad indices such as Sensex, Nifty, BSE Small-Cap, CNX Midcap and S&P CNX
500 given in the short term as well as long term time frames for the last one, three and five year periods.
Outperformance by the index during short term of last one year period is impressive where the benchmark
managed to outperform with considerable margin. Meanwhile, the performance of the index during various
market cycles was also notable which outperformed most of the broad indices for most of the cycles.
While comparing the performance of CNX Nifty Junior index with Nifty index, the former scores higher during all
set of market cycles (see the charts below).
Outperformance by CNX Nifty Junior and its ETF Vs. other broad indices in various time frames:
1200
GS Junior BeES
1000 Sensex
Nifty
BSE 100
800 CNX Midcap
CNX Nifty Junior
S&P CNX 500
600
400
200
0
Feb-03
Feb-04
Feb-05
Feb-06
Feb-07
Feb-08
Feb-09
Feb-10
Feb-11
Feb-12
Aug-03
Aug-04
Aug-05
Aug-06
Aug-07
Aug-08
Aug-09
Aug-10
Aug-11
Aug-12
GS Junior BeES Retail Research

8. 8
Mutual Fund Scheme Analysis contd…
.
Relative performance broad indices during various market cycles:
200 CNX Nifty Junior Sensex Nifty BSE Sm all-Cap CNX Midcap S&P CNX 500
150 126
118
103
86 89 81
100 71 72 76
63 65 68
50
0
-4 -3 -2 -6 -4
-18
-50
-54 -53 -58
-66 -62
-100 -73
June '06 to Jan '08 Jan '08 to Mar '09 Mar '09 to Nov '10 Nov '10 to till date
(Bull Run I) (Bear Run ) (Bull Run II) (Volatile Period)
Outperformance by CNX Nifty Junior Vs. other broad indices in various time frames:
CNX Nifty Junior Sensex Nifty BSE Sm all-Cap CNX Midcap S&P CNX 500
50 43
40 35
30
28
30 24 24
22
18 17
20 15 15 15
10 6 4 4 4 3
0 -1
0
-1 -1 -2
-3
-10
-10
-20
6 Month 1 Year 3 Year 5 Year
GS Junior BeES Retail Research

9. 9
Mutual Fund Scheme Analysis contd…
.
The below charts portray the outperformance of the CNX Nifty Junior index over Nifty during various cycles.
Growth of investments in indices over a decade: Performance in last one year period:
600 Nifty CNX Nifty Junior 160 Nifty CNX Nifty Junior
500 150
400 140
300 130
200 120
100 110
0 100
Dec-11
Jan-12
Feb-12
Mar-12
May-12
Jun-12
Jul-12
Oct-12
Nov-12
Dec-12
Sep-12
Aug-00
Aug-02
Aug-04
Aug-06
Aug-08
Aug-10
Aug-12
Apr-12
Aug-12
Growth of investments done during market peak: Growth of investments done during market bottom:
120 Nifty CNX Nifty Junior 400 Nifty CNX Nifty Junior
350
100
300
80 250
60 200
150
40
100
20 50
0
0
Jan-08
May-08
Jan-09
May-09
Jan-10
May-10
Jan-11
May-11
Jan-12
May-12
Mar-09
Jul-09
Nov-09
Mar-10
Jul-10
Nov-10
Mar-11
Jul-11
Nov-11
Mar-12
Jul-12
Nov-12
Sep-08
Sep-09
Sep-10
Sep-11
Sep-12
GS Junior BeES Retail Research

10. 10
Mutual Fund Scheme Analysis contd…
.
Constituents of CNX Nifty Junior index:
Data as of Dec 27, 2012.
Sector Break-up:
M edia & Entert Transpo rt
So ftware Industrial P ro ducts
Teleco mmunicatio n Serv P o wer & Others
Healthcare Services
Ferro us M etal Services
Chemicals & Others
Co nsumer Durables Trading
Gas & Others
P etro leum P ro ducts
A uto A ncillary Industrial Capital Go o ds
P esticides
A uto mo biles
Ho tel
Co nstructio n P ro jects
Cash & Others
P harma
B anks
Finance
Data as of Nov 2012.
Co nsumer No n Durables
GS Junior BeES Retail Research

11. 11
Mutual Fund Scheme Analysis contd…
.
Features of GS Junior BeES:
First Large + Mid cap oriented Exchange Traded Fund (ETF) in India.
Combination of a share and a mutual fund unit.
Real-time Trading on NSE.
Real-time Indicative NAV.
Available across NSE terminals.
Tracks the CNX Nifty Junior Index.
Priced at 1/100th of the CNX Nifty Junior Index.
The maximum total expense ratio is 1.02% per annum.
Structured as a Mutual Fund under the SEBI 1996 regulations.
Advantages of GS Junior BeES:
Simple – Can be bought/ sold on NSE like a share…real-time.
Economical – No load scheme.
Annual expense is one of the lowest for any mutual fund scheme in India.
Diversification – It’s a cost efficient way to invest in a basket of securities.
Equitable Structure – Long term investors insulated from short term trading activity.
Transparent – Investors have access to information on the portfolio constituents represented on a daily
basis.
Having lowest tracking error among the equity ETFs means that the GS Junior BeES tracks its benchmark
very closely compared to that of other ETFs.
GS Junior BeES Retail Research

12. 12
Mutual Fund Scheme Analysis contd…
.
GS Junior BeES – Scheme Details:
NSE Symbol :JUNIORBEES.
BSE Code :590104.
ISIN :INF732E01045.
Reuters :JBES.NS.
Bloomberg :JBEES:IN.
Fund Manager :Payal Kaipunjal.
Allotment date :February 21, 2003.
Minimum investment :16,000 units (Directly with fund) 1 unit on exchanges.
Closing Price :121.71 (Rs as on Dec 27, 2012)
NAV :122.78(Rs as on Dec 27, 2012)
Average AUM :87.66 Crs (as on Nov ’12).
Expense Ratio :1.02% (as on Nov ’12)
Tracking Error :0.02%*
Issued Cap :79,87,190(shares) as on 28-Dec-2012.
Market Cap :97.80(Cr) as on 28-Dec-2012.
Dividend yield :1.35%
Impact cost :0.36 (as on Dec ’12)
Entry / Exit Load :Nil.
Note: *- Tracking Error is calculated based on daily Rolling Returns for last 12 months (Source: NAVIndia).
GS Junior BeES Retail Research

13. 13
Mutual Fund Scheme Analysis contd…
.
Discount (+) / Premium (-) of Spot Price to NAV of GS Junior BeES over the last eight months:
4.00%
3.00%
2.00%
1.00%
0.00%
-1.00%
-2.00%
-3.00%
May-12
May-12
May-12
Jun-12
Jun-12
Jul-12
Jul-12
Oct-12
Oct-12
Oct-12
Nov-12
Nov-12
Dec-12
Sep-12
Sep-12
Aug-12
Aug-12
Daily traded volume in GS Junior BeES on NSE (Rs in Lac):
2500 GS Junior ETF
2000
1500
1000
500
0
Jul-09
Nov-09
Jan-10
Mar-10
May-10
Jul-10
Nov-10
Jan-11
Mar-11
May-11
Jul-11
Nov-11
Jan-12
Mar-12
May-12
Jul-12
Nov-12
Sep-09
Sep-10
Sep-11
Sep-12
The daily average volume in GS Junior BeES on NSE in last three months was at 24,209 units or Rs. 27.61 lacs.
Further the ETF was mostly quoted at discount of 1% to 2% in the given period. Hence GS Junior BeES is suited for
investors who wish to accumulate over time and hold for a reasonably long period of time.
GS Junior BeES Retail Research

14. 14
Mutual Fund Scheme Analysis contd…
.
Advantages of ETFs:
Lower expense ratio: ETFs are less expensive in comparison to actively and other passively managed schemes.
The expense ratio of ETFs is the lowest among mutual fund schemes which ranging from 0.25% to 1%. Index
Funds charge between 0.75% to 1.5% while actively managed funds charge up to 2.5% of the net assets. The low
expense ratio of ETFs is mainly attributable to passive investment nature hence there is no need of requiring the
service of fund managers and analysts. Moreover, there is less marketing cost and commissions. The average
expense ratios for ETF category as on Sep 2012 was at 0.87% (including gold ETFs).
Diversification: The investment through ETFs are widely diversified as indices are constructed to represent
performance of the stock market as a whole. It reduces the overall risk of one’s portfolio. Apart from major
indices such as Sensex and Nifty, fund houses have bestowed investors an opportunity to diversify their portfolios
through market capitalization (ICICI Nifty Junior, IDBI Nifty Junior and Junior BeES providing investment
opportunities in mid cap space), focusing on industry (Bank BeES & Infra BeES), asset class (liquid and Gold) and
explore in global arena (Hang Seng BeES).
Transparency: Investors can access the portfolio composition of index any day at any point of time. On the other
hand, portfolios of other mutual funds schemes are declared by AMCs once in a month.
No fund manager Risk: As the objective of such schemes is to mimic the performance of index which they track,
they construct the portfolios same as the tracking indexes. So these funds stay away from the risk of subjective
performances and biases of fund managers.
Liquidity: ETFs are listed and traded on stock exchanges like equity shares. They can be bought and sold on real
time basis at currently available prices at any time during trading hours. However, AMCs arrange to absorb any
excess supply of units that an investor would like to sell or create fresh units when the demand for units is large
enough. On the other hand, other funds including index funds that are available only at day-end NAV.
Simplicity: There is no separate form filling and can be traded by just a phone call. Investors have the ability to
put limit orders.
Others: There is an arbitrage opportunity available between Futures and Cash Market. Above all, passive funds
provide better downside protection than actively managed schemes during downturns.
GS Junior BeES Retail Research

15. 15
Mutual Fund Scheme Analysis contd…
.
Disadvantages of ETFs: On the downside, there are some drawbacks associated with ETFs.
Demat account: Demat account and broker’s accounts are mandatory for an investor to participate in the ETF
trading as they are traded in stock exchanges. No demat and broker accounts are necessary in case of index and
other mutual funds transactions.
Brokerage Charges: Brokerage and other transaction charges need to be paid when trading in ETFs. It can be
minimized by trading less but the very charm of ETFs is affected because it is meant for being traded more often
than an index fund.
Premiums and Discounts: An ETF might trade at a discount to the underlying shares. This means that although
the index might be doing very well on the bourses, yet the ETF might be traded at less than the market value of
the index.
SIP in ETF is not convenient as you have to place a fresh order every month and also SIP may prove expensive as
compared to a no-load, low-expense index funds as you have to pay brokerage every time you buy & sell.
True Replication: The index and ETFs may not replicate the returns of underlying index due to management
expenses, cash holding and so on which result in higher tracking error.
Inbuilt Cost: Impact cost is higher than its constituents. Transaction costs like brokerage charges need to be paid
anyway when trading in ETFs.
Comparison of ETFs, Stocks and Mutual Funds:
*= Including Index funds and non Index funds
GS Junior BeES Retail Research

16. 16
Mutual Fund Scheme Analysis contd…
.
How do ETFs Function?
ETFs vary from normal mutual funds in terms of the functionality, the manner in which they are created, bought
and sold. In normal mutual funds, investors pay cash to the fund house, which in turn buys the securities and
constitutes the fund.
In case of ETFs, the fund house appoints market makers in the stock market to execute all the transactions on
behalf of the fund house. The market-makers, also called as arbitrageurs or Authorized Participants (APs) involve
into the following four distinct transactions;
1. The Authorized Participants purchase a basket of shares, as specified by the fund house, for cash.
2. This basket of securities is then exchanged with the fund house for a set number of ETF units (creation).
3. The Authorized Participants then satisfy market demand by doing buy/sell orders (and sell/redeem these
units to investors just like a distributor does).
4. The Authorized Participants are performing an arbitrage between the ETF and index to keep the market price
of the ETF close to its NAV.
The Authorized Participants are empowered to create or redeem ETF units. They buy the basket of securities
(such as all the scrips of the market index as specified by fund house) and hand it over to the fund house, in
exchange of a certain number of units (which are usually 50,000 or a multiple thereof). This process is called
unit creation, whereby ETF units are “created” in exchange of a basket of securities.
The Authorized Participants then break up these units and sells them separately on the stock exchange. Investors
can then buy and sell these units through the stock exchange.
The Authorized Participants also redeem the ETF units by delivering them to the fund house in return for the
securities represented by those units. Note that the exchange of ETF shares and the securities they represent
between the Authorized Participants and the fund house is an in-kind exchange—there is no exchange of cash.
This also lowers taxes for the ETF sponsor, thereby lowering the fund’s fees.
GS Junior BeES Retail Research

17. 17
Mutual Fund Scheme Analysis contd…
.
How ETFs work?
Primary market Secondary market
Seller
Cash ETF Units
Authorized Buy / sell
Participants / Stock Exchange
Market making /
FI Arbitrage
Creation Redemption Cash
in-kind in-kind ETF Units
Fund Buyer
GS Junior BeES Retail Research

18. 18
Mutual Fund Scheme Analysis
No
Tracking Error:
Investors in an ETF buy or sell a security representing shares in the underlying index fund. They do expect the
price of the ETF to closely track the value of the underlying Index. They also want a sense of how closely the
ETF returns correlate with those of the index. Tracking error helps out the investors to measure as to how
closely the ETF tracks the underling index.
Tracking error is a statistical term commonly used to describe the volatility of returns of a ETF relative to the
returns of its benchmark index. It is typically expressed in terms of the standard deviation of the differences
between ETF and index returns over a specific horizon. It can be interpreted as the range around the index
return in which ETF returns are expected to be. For example, a tracking error of 1% implies that if the index
return is 10%, the ETF return should be 9%-11% about 68% of the time.
Tracking Error tells how much an ETF's returns deviate from the benchmark index's returns over any given period
of time. An ETF fund manager needs to calculate his tracking error on a daily basis especially if it is open-ended
fund. Lower the tracking error, closer are the returns of the fund to that of the target Index. For investors’ point
of view, the lower the tracking error, the better is the ETF.
Analyst: Dhuraivel Gunasekaran. (Database sources: AMC Sites, NAVIndia & Ace MF)
HDFC Securities Limited, I Think Techno Campus, Bulding –B, ”Alpha”, Office Floor 8, Near Kanjurmarg Station,
Opp. Crompton Greaves, Kanjurmarg (East), Mumbai 400 042 Phone (022) 30753400 Fax: (022) 30753435
Disclaimer: Mutual Fund investments are subject to risk. Past performance is no guarantee for future performance. This document has been
prepared by HDFC Securities Limited and is meant for sole use by the recipient and not for circulation. This document is not to be reported or
copied or made available to others. It should not be considered to be taken as an offer to sell or a solicitation to buy any security. The
information contained herein is from sources believed reliable. We do not represent that it is accurate or complete and it should not be relied
upon as such. We may have from time to time positions or options on, and buy and sell securities referred to herein. We may from time to time
solicit from, or perform investment banking, or other services for, any company mentioned in this document. This report is intended for non-
Institutional Clients.
GS Junior BeES Retail Research