Guide to ETFs: Understanding Exchange-Traded Funds

How ETFs Track Indices

Exchange-traded funds (ETFs) are investment products that aim to track the performance of a specific index. Understanding how they track indices, along with their liquidity advantages, is essential when considering them as an investment option in Singapore.

There are different ways to structure an ETF even if its investment objective is to track the same underlying index. One common type is a cash-based ETF, which holds the actual securities of the index.

Comparing ETFs and Unit Trusts

In Singapore, ETFs are often compared with unit trusts. Here are key points to consider:

• Fees and charges: Index tracking ETFs have fees and charges that are usually lower than those of actively managed investment funds.
• Management fees: ETFs tend to have lower management fees compared to actively managed funds.
• Sales charge: There is usually no sales charge for ETFs, although if you buy and sell them, there may be brokerage fees involved.

Important Considerations

Before investing, check with your financial institution whether the product you are considering is an SIP (Securities Investment Product). This step helps ensure you understand the nature of the product you are buying.