ETFs to buy for long term when stock market is down by almost 11% in 2022

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Nifty 50 and Sensex, the two leading stock market benchmarks are down by almost 11 per cent year-to-date. Many long term investors look upon this as an opportunity to buy. Afterall, of the many ways to make money in the stock market is to buy low and sell high. As past data shows, equities tend to drift upwards over the long term in spite of intermittent corrections, dips and market crashes.

In addition to mutual funds that one may buy offline or online, there are exchange traded funds (ETF) that one may consider buying. ETFs are primarily passive funds tracking an index or a sector and therefore are expected to deliver returns almost in line with index returns, subject to any tracking error.

Unlike mutual funds, the ETF units are traded on the NSE and BSE stock exchanges during trading hours. So, one can buy and sell ETF units the way one buys stocks anytime when the exchanges are open. Anyone with a demat account with any brokerage house can buy or sell ETFs.

There are several exchange traded funds (ETF) tracking different Nifty and BSE indices and one may build a portfolio across market cap and sectors. One may find the full list of ETFs on the website of NSE and BSE. While selecting them, keep an eye on the trading volume and avoid ETFs with lower volume.

To start with, if you want to take exposure in the Nifty 50 index, invest in an ETF that tracks Nifty 50. While there are several such Nifty 50 ETFs from various fund houses, the NIPPON India ETF NIFTY BeES is the oldest, largest and comes with enough liquidity and thus can be considered to be a part of your long-term portfolio.

Once you have the exposure in the large cap segment, if you want to take exposure in Nifty Next 50 index then you may consider buying units of UTINEXT50 or JUNIORBEES. Similarly, there are ETFs giving you access to mid-cap indices such as the Nifty Midcap 100 index or Nifty Midcap 150 index. For sectoral themes, there are ETFs tracking the Nifty Bank index or the Nifty IT index, Nifty Pharma Index, Nifty Consumption index amongst others.

On days where high volatility is witnessed, the price of ETF and index funds appears to show wide divergence. “This trend has historically been observed during periods of heightened market volatility. Unlike in case of index funds, where the NAV is only dependent on the price of the underlying holdings, the price of an ETF is additionally also driven by its demand and supply imbalances. During volatile periods, these imbalances may increase, causing ETFs to start trading at a price which may differ from the underlying NAV. However, AMCs have appointed market makers to minimize these divergences,” says Sankaranarayanan Krishnan, Quant Fund Manager (PMS & AIF schemes, Passive Funds) Motilal Oswal Asset Management Company.

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