While you are planning for your long term goals like child planning or retirement planning, it is always a good option to include a variety of investment instruments in your portfolio. In this regard, you may consider the investment into Exchange Traded Funds. Since ETFs as they are also called do not have to be managed actively, the returns on these funds sometimes are higher than the mutual funds.

Let us assume that you have a goal of retiring in 15 years. In the beginning you may want to use the retirement calculator to plan for the amount you will require for the retirement corpus. Once you have decided on your investment per month with the help of a retirement calculator, you can allocate a portion of your investment to ETFs.

 What are Exchange Traded Funds?

Exchange Traded Funds are funds that are traded intra day in the stock exchange. Exchange Traded Funds are a basket of securities that track an index underlying it. The ETFs can hold investments like bonds, stocks, equities or commodities like silver, or gold bars etc. The Exchange Traded Funds have the dual features of diversification that you can find in mutual funds combined with the ease of trading as in shares of a stock.

An Exchange Traded Fund can be bought and sold like any other shares of a company on the stock exchange. For trading in ETFs you will need a Demat account. The Exchange Traded Funds track an underlying index and do not require active fund management. This is the reason why Exchange Traded Funds have very low administrative and management costs when compared to an actively managed SIP mutual fund.

The assets underlying an ETF are owned by the provider of the fund provider, who forms the fund to monitor the performance. The investors of the fund are offered shares. The shareholders of the fund own a part of the Exchange Traded fund but not the fund's assets.

There is no facility of starting an SIP in Exchange traded Funds. There are few brokerage funds that offer the option to buy a certain number of units of the Exchange Traded Fund per month, which in effect works like  an SIP in ETFs, since you are systematically investing in the Exchange Traded funds each month. The retirement calculator will help you understand how much you need to invest per month to reach your financial goals. At times, an ETF that tracks a stock index benchmark may issue lump dividend payments or reinvestments for the constituent firms of the index to its investors. While building a corpus, it is best to reinvest the dividends. This will help you reach your goals earlier.

Remember though that Exchange Traded Funds, like any other investment vehicle does not come in one side fits all. Contact your mutual fund advisor and stockbroker or your financial advisor to guide you on the best Exchange traded fund option for you based on your goals.