Exchange-Traded Funds or ETFs are a pooled type of investment. They track index sectors, commodities such as gold or other such assets. You can buy and sell ETF on the stock exchange. Hence, this makes them cost-effective and liquid. ETF prices fluctuate throughout the day in the Stock Market depending on which ETF you track and its sector movement.

ETFs can hold stocks of various industries or mostly limit to just one sector. For instance, the Nifty ETF focuses on Nifty. When the Nifty index moves upwards, the price of the Nifty ETF goes up. Similarly, Gold ETF or Banking ETF focuses on all banking stocks. Most ETFs are open-ended. This means they have limited investors. Any number of investors can buy and sell Exchange-Traded Funds.

But Are They Ideal For Long-Term Investments?

ETFs are not too volatile and show a slight price change to stocks and indices. This is because they are diverse and pooled investments of several investors. ETFs generally deal with sectors and commodities. When many stocks of the concerned industry comprise ETF, it moves slowly. It may not move 10% to 20% in a single day but offers sizeable returns for the long term.

ETFs are an option that requires you to know the art of managing the portfolio. They are advantageous as they diversify risks, are professionally managed, and are affordable.

Benefits

Diversified

They are traded during the market hours, making them highly liquid and easier for investors. You can keep track of the everyday prices of the ETFs. Some big players could also intraday in ETFs.

Low Expenses

ETFs do not include expense ratio costs. For this purpose, open a Demat Account and pay your annual maintenance charges as you do with stocks.

Dividends Reinvested

When you receive dividends on stocks in ETFs, they get reinvested instantly but not under Index ETF.

Tax-efficient

ETFs very tax efficient. Passive trading in ETFs gives low capital gains compared to active ETF Trading.

Price stability

The ETF prices depend on supply-demand and the current Net Asset Value or NAV. They usually do not trade on heavy premiums and discounts.

Small amounts

You can buy ETFs in small amounts. They are not too expensive and would help if you had a minimum of a thousand or lakhs of rupees to buy ETFs.

Sector investment

If you are bullish on any sector or index, you can invest in an ETF of that sector. ETF prices change the moment that sector grows.

Conclusion

ETFs tend to offer steady returns. Market crash or downfall or correction, none of these impact ETF highly. Similarly, the ETF prices do not up very much when the market offers decent returns. It is always stable, and you can see reasonable changes after five to six years. You should be disciplined and patient as an investor. ETFs are a good buy and hold you should include in your portfolio.

Keywords: ETF, Exchange-Traded Funds, invest in ETF, NAV