Exchange traded fund (ETF)

There are many exchange traded funds (ETF) that are being marketed in SGX. The advantages of an ETF are:

a) It is a fund comprising of many underlying shares, i.e. provide diversification
b) It is invested to mirror a market index
c) The management fees are low
d) It can be traded at any time through the exchange

A good example of a ETF is the StateStreet Tracker fund, which is listed as STI ETF. It has an annual management fee of only 0.3%.

The annual fee for ETFs ranges from 0.2% to 1% depending on the fund manager. The ETF that are invested in China or India are likely to have higher fee.

If you buy a ETF, you pay a brokerage of around 0.3% plus GST and other charges. It can amount to 0.4%.

The annual management fee of a ETF is lower than an actively managed unit trust. For the unit trust, the manager will try to outperform the market. But, according to independent studies, most active fund managers had not been able to outperform the market, in spite of their higher fees. It is better to invest in a passively managed fund that mirrors the market, i.e. an indexed fund or ETF.

Tan Kin Lian