My objective of investing in index based ETF is to have a total return that is somewhat similar to the market performance as a whole. It also acts as my benchmark for other long term portfolios. As mentioned in earlier post, if I cannot beat the market by stock selection, I should just close my long term portfolio and invest everything in these index ETFs.
My initial thought process was I would be investing upto 30% of my long term portfolio into index funds. However, after spending some time reading and understanding the various available funds, I have come to realize that there is not much choice available to individual investors. This is not to say, I do not like ETFs. I am still a fan of ETF assuming that they are structured properly and have reasonable expenses. In general, most of the ETFs have low liquidity and high expenses. I do not want my investments to get stuck in the low liquidity funds.
As of now, I will continue to remain under allocated to index ETFs. I do not know what be would the targeted allocation. I will let readers know when I make a decision.
I have been trying to understand the options available for the index based investments that include index based mutual funds or exchange traded funds. In principle, I am fan of exchange traded funds because (a) they follow a given index; (b) no manager involvement; and (c) low cost structure. Index based fund investments are very good vehicle if an individual wants to avoid stock selection and just wants to follow the index performance. In general, for last 10 years, the NIFTY index has returned an average of 15.5% per year. This return excludes the dividend payments.
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