Should I invest in an ETF?

ETFs are a low cost means to gain exposure to the stock market. They offer liquidity and real time settlement as they are listed on an exchange and trade like stocks. ETFs are a low risk option as they replicate a stock index, offering diversification as opposed to investing in few stocks of your choice.

ETFs offer flexibility in the way you wish to trade like selling short or buying on margins. ETFs also provide access to a host of alternative investment options like investing in commodities and international securities. You can also use options and futures for hedging your position which are not available with mutual fund investing.

However, ETFs are not suitable for every investor. Index fundsare a better option for new investors who want to experience the benefits of equity investing for the long-term through a low risk option. ETFs are also suitable for those who have lumpsum cash but are yet to decide how to invest the cash. They can invest in ETF for the time being and earn some return till the cash is suitably deployed. Choosing the right ETF requires good understanding of the financial market than what most retail investors possess. Thus, a bit of hands-on investment style to manage your ETF investments is a must.