Top 10 Most Liquid ETFs

Understanding Liquidity in ETFs: Why It Matters?

Exchange-Traded Funds (ETFs) have become an essential part of modern investing due to their diversification, low expense ratios, and ease of trading. However, one crucial factor that investors often overlook is liquidity. Ignoring liquidity can lead to unexpected costs and losses. In this article, we will explore the significance of liquidity in ETF trading, its impact on costs, and highlight the top 10 most liquid ETFs based on weekly trading volume.

Why Liquidity is Important in ETFs

Liquidity in ETFs refers to the ease with which investors can buy and sell shares without significantly affecting the price. The key reasons why liquidity is crucial include:

1. Lower Bid-Ask Spread: High liquidity ensures a tighter bid-ask spread, reducing the cost of entry and exit.
2. Reduced Impact Cost: When an ETF has low trading volume, large orders can drive up prices, increasing the impact cost.
3. Efficient Execution: Highly liquid ETFs allow for smoother transactions and minimize price slippage.

What is Impact Cost in ETF Trading?

Impact cost refers to the difference between the expected and actual execution price due to liquidity constraints. For example, if you place a buy order for 1,000 units of an ETF at a price of ₹100 per unit, but due to low liquidity, your order executes at an average price of ₹101 per unit, your impact cost is ₹1 per unit or ₹1,000 in total. This additional cost could be avoided by choosing highly liquid ETFs.

Top 10 Most Liquid ETFs Based on Weekly Trading Volume

Here is a list of the most liquid ETFs, ranked by their weekly average trading volume:

10. Bharat 22 ETF

• Investment Focus: Public Sector Undertakings (PSUs)
• 1-Year Return: 74%
• Weekly Average Trading Volume: 11 lakh
• Trend: Decreasing volume

9. LTGILT ETF

• Investment Focus: Government Bonds (Debt ETF)
• 1-Year Return: 9%
• Weekly Average Trading Volume: 11 lakh
• Trend: Increasing volume

8. SilverBees ETF

• Investment Focus: Silver commodity
• 1-Year Return: 9.24%
• Weekly Average Trading Volume: 24L

7. PSUBankBees ETF

• Investment Focus: PSU banks
• 1-Year Return: 91%
• Weekly Average Trading Volume: 26 lakh

6. PharmaBees ETF

• Investment Focus: Pharmaceutical sector
• 1-Year Return: ~60%
• Weekly Average Trading Volume: ~27 lakh

5. NiftyBees ETF

• Investment Focus: Nifty 50 index tracking
• 1-Year Return: 28%
• Weekly Average Trading Volume: 28 lakh

4. GoldBees ETF

• Investment Focus: Gold commodity
• 1-Year Return: 11%
• Weekly Average Trading Volume: 30 lakh

3. LiquidBees ETF

• Investment Focus: Debt ETF (price stable, provides ETF units as dividends)
• 1-Year Return: Not applicable
• Weekly Average Trading Volume: 35 lakh

2. IT B ETF

• Investment Focus: IT sector
• 1-Year Return: 28%
• Weekly Average Trading Volume: 40 lakh

1. CPSC ETF

• Investment Focus: Government companies
• 1-Year Return: 105%
• Weekly Average Trading Volume: 43 lakh
• Trend: Decreasing volume

Observations & Market Trends

• Increasing Volume: LT Gilt 20 ETF is showing a consistent rise in trading volume, indicating increasing investor interest. This could be due to expectations of falling interest rates and market uncertainties.
• Declining Volume: CPSC ETF, despite being the most liquid, is experiencing a reduction in trading volume, suggesting declining interest in PSU investments.
• Stable Volume: Gold 20 and Pharma 20 ETFs have maintained a steady trading volume, reflecting sustained investor confidence in these sectors.
• Sector Rotation Indicator: The increasing volume in IT and pharma ETFs indicates a shift in investor preference toward these sectors.

Final Thoughts

Liquidity is a critical factor when investing in ETFs, as it directly impacts the cost and efficiency of trading. Investors should prioritize ETFs with high liquidity to minimize bid-ask spreads and impact costs. The top 10 ETFs listed above provide an insight into where investor interest is concentrated and how market trends are evolving.

Disclaimer: This content is for educational purposes only and is not intended as financial or investment advice. Please consult a qualified financial professional before making any financial decisions.