Illiquid Scrips – buying ETFs

POSTED BY Chethan S ON October 14, 2013 5:53 pm COMMENTS (6)

Having opened a new demat/trading account recently I set out to explore the world of investing. As I researched I discovered that index based ETFs are a safe and good way to invest in equities as –

  1. ETFs offer instant diversification
  2. They work out to be cheaper (in terms of expense ratio)
  3. Can be traded just like stocks in real-time

While I read about the importance of the availability of a seller/buyer I didn’t pay much attention to it.

Today I set out to buy 3 ETFs – ICCNX100, PSUBNKBEES and NIFETF. While I successfully bought last two – 10 & 50 Nos. respectively, I couldn’t buy the first one due to some errors. After I spoke to SBICAPSEC customer care I realized that ICCNX100 is an illiquid scrip and can’t be traded online.  A bit of preliminary research helped me understand that depending on trade volumes stock exchanges put the scrips in the illiquid list.

Now my question is,

  1. Is my investment safe in PSUBNKBEES and NIFETF? Can they go illiquid? I don’t intend to sell them off anytime soon (was planning to buy more units every month to mimic a SIP) but don’t want to be at the risk of long time illiquidity. Yeah, one can trade illiquid scrips by calling up the stock broker but I guess I may have to sell at a loss.
  2. What precautions can I take to avoid buying illiquid scrips – be it ETFs or stocks?
  3. Any pro tips on investing in the form of ETFs?

6 replies on this article “Illiquid Scrips – buying ETFs”

  1. ashalanshu says:

    Dear Kranti, for very large holdings, the answer is Yes.

    Thanks

    Ashal

  2. kranti goyal says:

    Hi,

    Can any body redeemed ETF from MF companies directly like normal Mutual fund?

    Thanks and Regards
    Kranti

  3. ashalanshu says:

    Dear Chetan, no one can guarantee that a particular ETf ‘ll remain liquid in future or not. So chose wisely and invest in only those ETFs which are highly liquid as on date.

    Thanks

    Ashal

    1. Chethan S says:

      Thanks Ashal!

  4. Anshuk Jain says:

    Yeah. Such ETFs can be a big pain.. If they are not illiquid, they may still have a wide spread forcing you to sell at a loss. Unfortunately there is no option but to check the current volumes and pray that the volumes do not go down..

    For Nifty ETF, you can go for IDFC Nifty which is not an ETF or Goldman Sachs Nifty ETS which has good volumes. Both have low expense ratios. But in Indian context, the indices are not efficient and there are scores of active funds which beat the indices fairly regularly

    1. Chethan S says:

      Thanks Anshuk! I will check out IDFC Nifty. Didn’t go for NIFTYBEES as it was trading for a higher value and hence I chose NIFETF which was introduced recently.

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