Trading Guide: Is volatility keeping you away from investing? Try Nifty low vol 30 ETF

When it comes to investing, especially in equities, one can never escape market volatility. Given that the equity market is influenced by a variety of domestic and international factors, one cannot wish away volatile times.

For most investors, this leads to an unnerving experience. However, it is these very volatile times that present some of the best investment opportunities.

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So, if you are a long-term investor, it is imperative to make peace with volatile times instead of looking at it as an adversary and make use of such phases to build a robust corpus.

There are various reasons why a market can be volatile. The reasoning can range from external stimuli like geopolitical tension or pandemic to domestic development like policy matters, sector-specific development, etc., all of which can cause tremendous volatility.

But, if you learn to leverage market volatility, you can make significant returns. In other words, don't be afraid of volatility, rather learn to manage it efficiently.

Nitin Kabadi, Head - ETF Business, ICICI Prudential AMC highlights the rationale why investors should consider investing in Exchange Traded Fund (ETF) amid volatility:

Optimally Managing Volatility

One of the ways a volatility-averse investor can consider taking exposure to equity as an asset class is through a product that is based on the Nifty Low Vol 30 Exchange Traded Fund (ETF).

This ETF follows the principle of investing in stocks of large companies, which have, historically, depicted low levels of volatility.

Being an ETF means the offering will replicate holdings in the same proportion as that of its underlying index. In this case, the underlying index is the Nifty Low Vol 30 ETF.

In effect, the returns generated too will be similar to the underlying index minus tracking error and expenses.

For reference -- ICICI Prudential Nifty Low Vol 30 ETF gets access to the 30 least volatile securities from the large-cap universe (top 100 stocks based on market capitalisation).

Another benefit by investing in an ETF is that the names which are a part of the portfolio will be reviewed on a quarterly basis and constantly and the 30 least volatile names will be a part of the portfolio.

Being less volatile does not necessarily mean lower returns. This can be gauged from the index performance which over the last five years had delivered a CAGR of 14.73% as compared to 14.85% delivered by Nifty 100 TRI in the same timeframe.

Since the universe of selection will be the top 100 names based on market capitalisation, investors will invest in some of the most robust listed companies in India.

Such companies will not only be fundamentally strong but also be names that have the ability to withstand any disruption that may occur in their respective sectors.

Currently, the portfolio is spread across 10 different sectors of which consumer goods, IT and financial services form the top three sectors.

In effect, through this ETF an investor gets access to the least volatile companies which are stable and can generate healthy returns.

As a passive fund, this offering allows you to invest in the market at a negligible fee, making it an optimal solution for investors keen on participating in the equity market but worry about market volatility.

Also, since it is an equity-oriented ETF, it offers you tax benefits available on equity funds. So, whether you are a first-time investor or someone investing to secure their retirement fund, this ETF can help you withstand and manage volatility in an optimal manner.   

(Disclaimer: The views/suggestions/advice expressed here in this article is solely by investment experts. Zee Business suggests its readers to consult with their investment advisers before making any financial decision.)