ETF- One of the intersting options for investors!

Despite the fact that markets have improved since the beginning of the year the sessions have been choppy and the investors are weary as there is a sense of uncertainty among them.
And obviously every investing avenue faces the downside risks and exchange-traded funds or ETFs is no exception.

So as an investor what should be your strategies for protecting your ETFs during the down market times? Should you sell it or hedge it?
What is ETF?
Exchange-traded funds or ETFs is fast becoming as one of the most popular emerging options for the investors.
And for the uninitiated an exchange-traded fund is a security that stalks a commodity or an index or a group of assets such as index fund but differs in the trading aspect.
ETFs are traded like stocks on an exchange with changes in their pricing impacted by the buying and selling happening there.

Reasons why you should sell your ETFs during a down market situation:
Your risk tolerance: Probably the number one reason to sell your ETFs during down market is your risk tolerance. If you think you have had enough of losses or feel that you cannot take further risks then probably it is time to sell your ETFs.
How does this benefit you? If the market conditions had already made a dent on your capital, then selling your ETFs will save your remaining capital.
Stop orders: This is another effective tool to protect your portfolio. It is a tool having similar stop techniques as used in stocks like trailing per cent stops, limit stops and volatility stops and other such alternatives.
How does this benefit you? Stop orders could help you close out a position at a preset amount to minimize losses.
Selling will get you cash: During down market you can sell your ETFs if you are in need of immediate money for some purpose. This way you can keep some gains and get cash to meet your requirements.

Advantages of ETFs:
1.During a market downturn, ETFs have different provisions in everyday tools for doing allocation of assets in line with your risk appetite and tolerance and your financial goals.
2.You can allocate assets in various classes by reducing your portfolio exposure to equity capitalisations, assets and sectors that could take a hit in a down market.
3.Another strategy would be to over- or underweight your portfolio that will help tone down the downside risk.
4.Sector rotation is another important protection strategy in times of a downturn.
5.ETFs offer an excellent scope to identify, reposition and reinvest in those sectors that are stronger at different points like the expansion and prosperity points along the business cycle, the typical long-term pattern of changes in GDP the industry sectors follow.

Source : Rediff