Exchange Traded Fund

Exchange Traded Fund (ETF)

An Exchange Traded Fund is a type of fund which owns the underlying assets (shares of stock, bonds, commodity,gold,foreign currency, oil, etc.) and divides ownership of those assets into shares. The actual investment vehicle structure (such as a corporation or investment trust) will vary by country, and within one country there can be multiple structures that co-exist.

Shareholders do not directly own or have any direct claim to the underlying investments in the Exchange Traded Fund; rather they indirectly own these assets.

Exchange Traded Fund(ETF)  shareholders earned interest or dividends(2-3% or higher) from the proportion of the profits from the pool of underlying assets. Also shareholders may expect to get a residual value in cash if the fund is liquidated. Exchange Traded Fund can easily be purchased from the Singapore Stock exchange or using CFD account to purchase from US Dow zone Industrial Index. that are quite similar to buying and selling of equities /share that are being traded on public stock exchanges.


The unique feature and advantages of trading Exchange Traded Fund is that investors get the diversification of an index fund as well as the ability to sell( short), buy(long) as little as one share or 1000 share ( depends on the lot size being quoted on different country stock change).
Another advantage is that the expense ratios for most ETFs are lower than those of the average equity stock.

Below are the advantages of the expense ratios for trading ETFs being listed on the Singapore exchange website ( http://sgx.com/wps/portal/sgxweb/home/products/securities/etfs)

1. What ETFs are included in the clearing fee waiver?
All ETFs listed on Singapore Exchange are included.

2. How much are ETF clearing fees and how will the waiver be effected?
The clearing fees of 3.25 basis points (bps) of traded value will be waived at source. Contract statements will be issued with zero clearing fees applied.

3. What is the applicable period for the ETF clearing fee waiver?
The ETF clearing fee waiver is applicable for all trades with contract issue dates between 1 June 2015 to 31 December 2015, both dates inclusive. For most ordinary trades with T+3 settlement (including non-overnight married trades), the contract issue date is the date in which the trade is being done.

4. Are there any exchange fees other than clearing fees for trading ETFs?
Access fees of 0.75 basis point (bps) of traded value for on-screen trades will continue to be charged. Married trades do not incur access fees.

The other benefits are as follows:

Cash equitisation

Typically adopted by institutions, ETFs can be used to convert cash into equities temporarily to minimize cash drag.

Hedging

ETFs can be used to hedge against other investment position. For instance, an investor may long a specific market segment while at the same time shorting an ETF.

Why invest on ETFs listed on the Singapore Exchange (SGX) - quote from SGX website dated 13th Jan 2016

Efficient

Broad diversification can be achieved in one single transaction with minimum investment.  When an investor buys an ETF, he gains cost efficient exposure to a diversified portfolio of securities through single transaction.

As ETFs are passive funds, the annual management fees are generally lower at less than 1% compared to unit trusts or traditional funds that charge at about 1%-2%

Transparency

Investors can readily access real-time information such as ETF prices, fund information and index information on the websites of the Issuers, Index Provider and SGX.  Market prices are published real-time through the trading day.

Flexible

Investors can buy and sell ETFs anytime during trading hours and may employ the traditional trading techniques including stop order, limit order and short sales.

These are some of the ETFs counters being traded on the Singapore stock exchange:

1. Nikko AM STI ETF - 

2. STI ETF 

3. SPDR Gold Shares and many others ...