• Download APP
  • NAVs
    • Change in disclosure of NAV timeline for select schemes w.e.f. 1st July, 2023.
      For details, please click here.

  • First time investment : Give a missed call on 8980017232

MK
Dashboard Settings Logout
New to ICICIPRUMF?
Start your first investment
Quick Invest
Invest with Folio No.
Back
Back

Posted on 5/31/2023 6:30:00 PM

Trading volume is the total number of ETF units bought or sold during the trading hours on a given day whereas liquidity is the ease with which the units of an ETF can be bought and sold on the exchange.

While trading volume affects the liquidity, it is not the only factor that affects liquidity. Let’s take a look at the other factors affecting liquidity

1)  Composition of the ETF

If the underlying stocks of the ETF are highly traded, the ETF will be more liquid as well. ETFs that invest in large cap stocks may be more liquid as compared to ETFs that invest in small or mid cap stocks. This is because large cap stocks are usually more widely traded than small cap or mid cap stocks hence the trading volume on large cap stocks is higher making it more liquid.

The asset class also causes an impact on the liquidity of the ETF, as trading volume increases or decreases based on what is most preferred by investors, e.g., ETFs that invest in real estate may be less liquid than ETFs investing in equities.

2)  Market Conditions

The liquidity of ETFs may also depend on the overall market conditions. Periods of high market volatility or economic uncertainty may cause liquidity issues if a lot of people are trying to buy or sell their investments at the same time.

3)  Sector Performance

If a certain sector is performing well, ETFs tracking that sector may see increased trading activity. This increased trading activity can improve liquidity for those specific ETFs as there is greater participation from buyers and sellers where as if investors are rapidly moving away from a sector, the ETFs tracking that sector may experience decreased liquidity.

It also helps the investors zero down on a particular ETF for investment that aligns with their goals.

4)  Trading Volume

Last but not the least, trading volume impacts the liquidity of the ETF as well. Frequently traded ETFs have a higher trading volume and vice versa. The factors listed above may also affect the trading volume of the ETF.

Therefore, we know that trading volume is not the sole reason that affects the liquidity of an ETF. ETFs with a lower trading volume can still be liquid if their underlying securities have a high level of liquidity.

Thus, the liquidity of ETFs does not depend solely on its trading volume but is also affected by other factors.

Disclaimer

An investor education initiative.

Visit www.icicipruamc.com/note to know more about the process to complete a one-time Know Your Customer (KYC) requirement to invest in Mutual Funds. Investors should only deal with registered Mutual Funds, details of which can be verified on the SEBI website http://www.sebi.gov.in/intermediaries.html For any queries, complaints & grievance redressal, investors may reach out to the AMCs and/or Investor Relations Officers. Additionally, investors may also lodge complaints on https://scores.gov.in if they are unsatisfied with the resolutions given by AMCs. SCORES portal facilitates you to lodge your complaint online with SEBI and subsequently view its status.

Mutual Fund investments are subject to market risks, read all scheme related documents carefully.

Tags:

Previous Article

Myth: You require a large amount of money to start investing in ETFs

Next Article

Myth: ETFs are risky investments

  • Did You Know?

    You can transact faster and enjoy more features on ICICI Pru AMC once you log in!

    Login Now

  • Need to talk?

    Call on our Toll free number 1800 222 999(BSNL/MTNL)

    or Get a call back

  • Follow Us

    The latest from ICICI Pru AMC, including our unique, industry-leading programs, conferences, reports, and special events.

Recommended fund