Exchange Traded Funds (ETFs) are becoming increasingly popular among investors looking for a diversified and cost-effective way to invest in the financial markets. Buying an ETF in Singapore provides a convenient way to access a variety of asset classes including equities, bonds and commodities through a single investment vehicle. In this guide, we will explain what ETFs are, their pros and cons, and how to invest in ETFs in Singapore.
What are ETFs?
ETFs are investment funds that are traded on stock exchanges, similar to individual stocks. They hold a variety of assets such as stocks, bonds, or commodities and generally operate with a strategy that is designed to keep its market price close to its net asset value, although differences in prices can occasionally occur. ETFs are typically designed to track the performance of specific indexes, such as the Straits Times Index (STI) in Singapore, offering broader exposure to a wide range of stocks and companies within the index.
Benefits of ETFs
- Diversification: One of the main advantages of ETFs is that they offer immediate diversification via investing in a list of stocks. This can help reduce the overall risk of your portfolio as compared to investing in individual stocks or bonds.
- Cost Efficiency: ETFs often have lower operation fees compared to other assets such as mutual funds, making them a cheaper investment option for investors looking to keep their costs low.
- Liquidity: ETFs are traded on stock exchanges, which means they can be bought and sold throughout the trading day at market prices. This provides investors with increased liquidity, unlike traditional mutual funds which may require a longer time to be converted to cash.
- Transparency: Most ETFs regularly disclose their holdings, allowing investors to see exactly what they are investing in. This transparency can help investors make more informed decisions about their portfolios.
- Flexibility: ETFs can be bought and sold like stocks, allowing investors to take advantage of price movements within a day, as well as to implement various trading strategies.
Drawbacks of ETFs
- Trading Fees: While ETFs have lower expense ratios and fees as compared to mutual funds, investors may incur additional fees such as brokerage fees and commissions when buying and selling ETFs, which can reduce your overall returns, especially for traders who make many trades.
- Price Differences: While most ETFs aim to track the performance of their underlying index, there can be slight deviations in the market price of the ETF due to factors such as fees, trading costs, and market conditions.
- Limited Control: ETF investors do not get to choose what makes up the underlying holdings of the fund, as the fund manager of the ETF is the one who makes decisions about which stocks or assets to include or exclude from the fund.
- Market Risk: Like all other investments, ETFs are subject to market fluctuations, due to factors such as economic conditions, interest rates, and geopolitical events.
How to Invest in ETFs in Singapore
- Choose a Broker: The first step in buying ETFs in Singapore is to choose a brokerage firm that offers access to the relevant exchanges where your desired ETFs are traded. Examples of brokerage firms in Singapore include DBS Vickers, OCBC Securities, Phillip Securities, UOB Kay Hian, and Interactive Brokers.
- Open a Trading Account: Register for a trading account with your chosen broker. This can usually be done online and requires you to provide some personal information and funding for your account.
- Research ETFs: Before investing in ETFs, you should read up and look through the available ETF options, Understand their investment objectives, underlying holdings, and performance history before making a decision of which ETF you want to invest in.
- Place Your Order: Once you have chosen an ETF to invest in, you can place an order through your brokerage account. You will need to state the number of shares you want to buy and the price at which you are willing to buy them at.
- Monitor Your Investment: After you have invested in an ETF, you can monitor its performance regularly and make any necessary adjustments to your investment strategy.
Singapore ETFs
Singapore offers a variety of Exchange-Traded Funds (ETFs) that cater to different investment objectives and strategies. These ETFs provide investors with exposure to various sectors, industries, and asset classes within the Singapore market. Some of the popular Singapore ETFs include:
- Nikko AM Singapore STI ETF: This ETF is created to track the performance of the Straits Times Index (STI), which is made up of the top 30 companies listed on the Singapore Exchange. This is a great way for you to invest in the largest and most liquid stocks in Singapore.
- Lion-Phillip S-REIT ETF: This ETF invests in a basket of Real Estate Investment Trusts (REITs) listed in Singapore. It can provide you with exposure to the Singapore real estate market and also offers regular dividends generated from the rental income from REITs.
- ABF Singapore Bond Index Fund: This ETF tracks the performance of the iBoxx ABF Singapore Bond Index, which consists of high-quality Singapore bonds issued by the Singapore government. This would provide you with an excellent way to invest in Singapore government bonds while maintaining a relatively low risk profile.
- Phillip SGX APAC Dividend Leaders REIT ETF: This ETF invests in a diversified portfolio of dividend-paying REITs listed in Singapore, as well as other Asia-Pacific countries. It offers investors exposure to the real estate markets in both Singapore and abroad.
- SPDR Straits Times Index ETF: This ETF also tracks the performance of the Straits Times Index (STI), which provides another way for you to invest in the top 30 companies listed on the Singapore Exchange.
These ETFs offer a variety of options for you to diversify your portfolio and gain exposure to different areas of Singapore’s economy. However, you should carefully consider your investment goals, risk appetite, and the specific properties and characteristics of each ETF before you invest.
Conclusion
Exchange-Traded Funds (ETFs) provide investors in Singapore with a convenient and cheap way to diversify their portfolios across various asset types. Understanding the advantages and disadvantages of ETFs is crucial for making informed investment decisions. By following the steps outlined in this guide, you will be able to confidently navigate the world of buying ETFs in Singapore, including considerations for bond investments.
