A comprehensive guide to exchange-traded funds in Singapore

Exchange-traded funds, or ETFs, are considered one of Asia’s most famous investments today. ETFs offer investors access to global markets, including stocks, bonds, commodities, and currencies. They also provide diversification benefits that can be difficult to achieve with a single stock or mutual fund. In this guide, we’ll explore what change-traded funds in Singapore are all about, from what they look like, how they work, and why you may want to invest in them.

What are exchange-traded funds in Singapore?

An exchange-traded fund is an investment vehicle that holds various assets such as stocks, bonds, or commodities. ETFs in Singapore are traded on the stock market, just like ordinary stocks. Investors in Singapore can buy and sell ETF shares the same way they would a regular stock. The value of an ETF’s shares is determined by its underlying holdings’ net asset value (NAV), which fluctuates throughout the day as prices for those assets change.

What types of exchange-traded funds are available in Singapore?

Singapore investors have access to a wide variety of ETFs, including broad-based index funds that track major indexes such as the Straits Times Index or MSCI Asia Pacific ex-Japan Index; sector-specific ETFs that focus on specific industries such as banking or technology; and even leveraged/inverse ETFs that seek to magnify the daily return of an index.

In addition, there are also ETFs available in Singapore that focus on specific countries or regions, such as China, Japan, and the US. These funds provide exposure to overseas markets without having to take into account foreign exchange risk.

How do you invest in exchange-traded funds in Singapore?

Investing in ETFs is relatively straightforward. You can purchase ETF shares through a reliable broker or online trading platform like any other stock. You can purchase ETF shares directly from the fund manager at NAV (net asset value) prices. It’s important to note that some fund managers require minimum investment amounts for direct purchases, while others charge additional fees for buying direct.

It’s also essential to research the ETF before investing in it. Different funds have different objectives, such as capital appreciation or income generation, and some are more actively managed than others. It’s essential to select a fund that is appropriate for your risk management strategy and financial goals. Using a broker like Saxo Capital Markets PTE is advised for beginner traders as they offer a range of ETFs with low commissions.

What are the benefits of investing in exchange-traded funds?

ETFs offer several advantages over traditional investments such as stocks and mutual funds. One of the most vital benefits is cost savings. ETFs have lower broker and management fees than mutual funds, resulting in higher investor returns. ETFs also offer high liquidity, allowing investors to quickly enter and exit positions when needed.

ETFs provide diversification benefits that are difficult to achieve with a single stock or mutual fund. Because ETFs track broad-based indices, they allow investors to gain exposure to multiple asset classes without purchasing individual stocks or bonds. It can help reduce portfolio volatility and improve risk-adjusted returns.

Because they are traded like stocks, ETFs can be used as part of an active trading strategy. Investors can quickly buy and sell shares to exploit market opportunities or manage risk exposure. ETFs are also incredibly easy to trade. Like a regular stock, you can buy or sell ETF shares anytime during trading, which makes them ideal for short-term traders who take advantage of market movements quickly and efficiently.

What are the risks associated with exchange-traded funds?

Like all investments, ETFs carry risk. If the underlying assets of an ETF decline in value, its share price will also fall accordingly. In addition, investors may be subject to currency or liquidity risks if they invest in foreign markets with limited access and liquidity. Leveraged/inverse ETFs are extremely risky due to their higher leverage and can result in substantial losses if not properly monitored.

Researching the fund manager before investing in an ETF is also essential. Some have more experience managing ETFs than others, so selecting one with a good track record and a solid reputation is crucial.

The bottom line

Exchange-traded funds offer investors in Singapore access to a wide range of markets with low fees and flexible trading options. They provide diversification benefits and cost savings, making them an attractive investment option in Singapore for many investors. However, before investing in any ETF, it is essential to thoroughly research the fund’s objectives and risks to make informed decisions. With this trading knowledge, investors can benefit from exchange-traded funds’ many advantages.