Can An Exchange Traded Fund Give You Good Returns Over The Long Term?

By Author: SURAAJ
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Investment objectives could be for the short term, mid-term, or the long-term. Short term goals are those that occur within a year, mid-term financial objectives take place within 5 years, and those objectives that are beyond that can be called the long-term objectives. Long term goals prioritize wealth creation and do not put too much emphasis into short term profits. Long term investors look for diversification coupled with a reasonably stable income to grow their wealth for goals like retirement, children’s education among others. In this article we will look at ETF or an Exchange Traded Fund as an investment option to take care of your long-term goals. 
 
What are ETFs? 
 
An ETF or Exchange Traded Fund is a fund created out of the pooled money of investors much like a mutual fund, with an exception that while mutual funds are not traded on stock exchange, an ETF is mandatorily listed on the exchange and traded at prices that fluctuate throughout the day. The ETFs invest in a basket of securities comprising ...
... stocks, bonds and commodities. They are passive investment vehicles which track a benchmark index like the Nifty 50 or Sensex. An Exchange Traded Fund is a combination of features of a mutual fund and stock. Offering diversification like a mutual fund and liquidity like a stock.  
 
Can you consider an Exchange Traded fund for long term investment? 
 
Long term financial goals of investors revolve around wealth creation. Investors look for diversification, liquidity and expert management at low costs or expense ratio. The following features of an Exchange Traded Fund make them ideal for long term investors who would like to save for goals like retirement. Before starting the plan for retirement, it would be good to use a retirement calculator to figure out how much you would need to save up for your silver years. The features of an ETF are: 
 

An ETF offers diversification as it holds a basket of securities comprising different stocks, bonds and commodities in its holding. 

ETFs are cheaper than mutual funds as they are passively managed and does not require the active participation of a fund manager. 

ETFs track a market index and usually have a lower tracking error and offer reasonably stable returns over the long term. 

ETFs offer liquidity as they can be traded intraday. 

 
Therefore, you can see that an Exchange Traded Fund has all the ingredients of a long-term investment option and can be aligned to your long-term goals.  
 
How to align ETF investment to your long-term goals? 
 

The starting step of any investment plan is to determine how much you will need in order to meet the goals of your investment. For this you may use any of the calculators like an SIP calculator, or a retirement calculator etc. Input the details required in the calculator of your choice and figure out the target amount for the goal(s) that you want to invest in.  

Next you would need to plan on what will be the mix of ETFs you would want to invest in. 

Now decide on the investible surplus that you can contribute to your investment in the ETFs. 

 You will need to open a Demat account for investing in ETFs.  

You can start investing in the Exchange Traded Fund with a systematic plan of Investment by investing some amount in the ETF of your choice at every period of your choice.  

Monitor your investments into an ETF periodically to ensure good portfolio health. 

 
Talk to a broker to understand how you can invest in an Exchange Traded Fund.