What is Bank Nifty ETF and how does it work?

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In the world of financial instruments, Bank Nifty ETFs (exchange-traded funds) have emerged as a popular choice among investors. In this article, we will understand Bank Nifty ETFs, how they operate, and the factors that influence their returns.

  • Table of contents
  1. Understanding Bank Nifty ETF
  2. How Bank Nifty works?
  3. Calculating Bank Nifty returns
  4. Advantages of Bank Nifty ETF
  5. FAQ

Understanding Bank Nifty ETF

Bank Nifty ETF is an investment fund that primarily tracks the performance of the Nifty Bank Index, subject to tracking error. This index contains the top banking stocks listed on the National Stock Exchange (NSE) in India. Just like any other ETF, the Bank Nifty ETF trades like a single stock on the exchange, offering investors a convenient and cost-effective way to gain exposure to the entire banking sector. Moreover, investors can buy and sell units of the ETF on the stock exchange, providing them with a convenient way to gain exposure to the banking sector as a whole.

How Bank Nifty works?

Let’s understand bank nifty, how it works, and what are its underlying constituents:

Composition: As mentioned, the ETF tracks the Nifty Bank Index, which comprises 12 select banking and financial institutions based on market capitalisation and liquidity. These banking giants influence the index's performance significantly.

Underlying index: Bank Nifty ETFs are designed to replicate the performance of the Nifty Bank Index. This index includes leading banking stocks, representing the banking sector's overall health and performance.

Passive management: Bank Nifty ETF typically follows a passive investment strategy. This means that the fund's objective is to mimic the underlying index rather than actively selecting individual stocks. Expert fund managers aim to maintain a portfolio that closely mirrors the Nifty Bank Index composition.

Stock weightage: The performance of Bank Nifty ETF is directly influenced by the stock weightage within the Nifty Bank Index. Stocks with higher market capitalisation and liquidity have a more significant impact on the ETF's returns.

Market fluctuations: Similar to individual stocks, the value of Bank Nifty ETF fluctuates throughout market trading hours. Factors such as economic indicators, interest rates, and global events can impact the banking sector, consequently affecting the performance of the ETF.

Calculating Bank Nifty returns

How to calculate bank nifty returns? Like any investment, understanding your returns is crucial. The calculation considers both capital appreciation (change in ETF value) and any dividends received during the holding period. It provides a percentage figure, offering a clear picture of the returns on the investment.

Price change: The simplest method involves calculating the difference between the unit price at which you bought and sold the ETF. This gives you the absolute gain or loss in rupee terms.

Percentage return: To compare against other investments, calculate the percentage return by dividing the absolute gain by the initial investment and multiplying by 100.

Annualised returns: Consider the holding period when evaluating performance. For longer holding periods, calculate the annualised return using relevant formulas that factor in the time horizon.

Advantages of Bank Nifty ETF

Investments in Bank Nifty ETFs offer many potential advantages. For example, the Bajaj Finserv Nifty Bank ETF offers advantages such as continuous liquidity provided by the Authorized Participant (AP) on the exchange and closely tracking real-time Net Asset Value (NAV) or indicative NAV (iNAV). With a lower spread on the exchange, it provides a reduced effective spread, factoring in Securities Transaction Tax (STT) and brokerage. Various other benefits include –

Diversification: The Bajaj Finserv Nifty Bank ETF provides investors with instant diversification across multiple banking stocks, reducing individual stock risk.

Liquidity: As Bank Nifty ETFs trade on the stock exchange, you can buy or sell units at prevailing market prices throughout the trading day, ensuring liquidity.

Cost-efficiency: Passive management results in lower fund management fees compared to actively managed funds, making Bank Nifty ETF a cost-effective investment choice.

Transparency: The transparency of a Bank Nifty ETF allows investors to monitor the fund's holdings and performance in real-time.

Sectoral Play: If you believe the banking sector holds potential for growth, the ETF allows you to capitalise on its collective growth without picking individual winners.


Bank Nifty ETFs offer a straightforward and cost-effective way for investors to participate in the banking sector's growth. Understanding how these ETFs operate, including their passive management approach and the factors influencing returns, empowers investors to make informed decisions. By calculating returns and staying attuned to market dynamics, investors can operate in the financial markets with confidence. In summary, the Bank Nifty ETF serves as an invaluable instrument for investors looking to align their portfolios with the performance of the banking sector. It provides a balanced and diversified approach to investments. So, start an investment with theBajaj Finserv Nifty Bank ETF and get started on your journey of wealth creation. For a detailed scheme information, clickhere

Mutual Fund investments are subject to market risks, read all scheme related documents carefully.
This document should not be treated as endorsement of the views/opinions or as investment advice. This document should not be construed as a research report or a recommendation to buy or sell any security. This document is for information purpose only and should not be construed as a promise on minimum returns or safeguard of capital. This document alone is not sufficient and should not be used for the development or implementation of an investment strategy. The recipient should note and understand that the information provided above may not contain all the material aspects relevant for making an investment decision. Investors are advised to consult their own investment advisor before making any investment decision in light of their risk appetite, investment goals and horizon. This information is subject to change without any prior notice.