Why are savvy HNIs turning to ETFs during market dips?

Mumbai: Savvy mutual fund investors have been buying the dips using equity Exchange-traded Funds (ETFs). Data from ETIG shows that over the past year, trading activity in ETFs on the National Stock Exchange (NSE) has seen spurts on days the Nifty has fallen more than 1%.

"We've consistently observed that ETF volumes spike on days when the market or the underlying index falls," says Swarup Mohanty, vice-chairman & CEO, Mirae Asset Investment Managers (India).

For instance, on April 7, when Nifty fell 3.24% amid tariff hikes and backlash from China, ETFs worth ₹5,810 crore were traded on NSE. This was more than double the previous five-day average of ₹2,766 crore. Similarly, on February 28, when the Nifty 50 declined 1.86%, ETFs worth ₹2,813 crore changed hands compared with the five-day average of ₹1,585 crore. ETFs are traded like stocks and returns mirror the moves of the underlying index like Nifty or Bank Nifty.


It's largely the more informed investors, such as family offices and the affluent that are implementing this investment strategy. "Several HNIs (high networth individuals), family offices and institutions use any volatility and intraday dips to buy ETFs," says Saket Kumar, co-founder, ETFjunction.com. "ETFs carry lower risk than individual stocks, making them an attractive option."

Mohanty adds that these investments during market dips are being made either for the long term or for short-term tactical purposes.

'Buy the dips' is a strategy where investors take advantage of short-term market declines to buy stocks or ETFs at lower prices on the belief that the decline is temporary.

Investors find ETFs cheaper compared with index funds, which are bought and sold directly by the mutual funds. The Nifty ETF carries an expense ratio as low as 5 basis points with no recurring costs. In contrast, a Nifty 50 index fund (direct plan) could charge between 5 and 20 basis points.

The ability to buy and sell immediately is a key advantage that ETFs have over index funds, where investors must wait for the day-end net asset value (NAV).

"There are no exit loads in ETFs, the expense ratio is low, and investors can buy or sell during market hours, which is attracting more investors to the product," says Arun Sundaresan, head - ETF, Nippon Life India Asset Management.