If you are a busy professional who have no time for stock research but would like to build a diversified investment portfolio with global exposure, then exchange traded funds (ETFs) may be for you.
Generally, there is still a lack of awareness among retail investors on this class of investment probably because ETFs passively track indexes. Thus, it may take the thrill out of stock picking. Nonetheless, ETFs offer an alternative path to seek returns from the market.
Broadly speaking, ETFs is a type of collective investment scheme that pooled money from investors and invested according to the fund’s objective. In a way, it is similar to unit trust. However, the main difference between unit trust and exchange traded fund is that the former is actively managed by professionals while the latter passively track a specified index. Because of this, ETFs are open-ended investment funds and are traded on a stock exchange.
The interesting thing about ETF is that it replicates an index and do not try to outperform the underlying index.Take for example, if an ETF tracks the Straits Times Index (STI) which declines in value, the ETF would produce a return that reflects the drop in value.
There are several advantages in investing in exchange traded funds. Firstly, if you have limited capital but would like access to blue chips, then ETFs offer a low cost and simple way for you to own index stocks. For example Nikko AM Singapore STI ETF offers investors an opportunity to invest in the top 30 companies listed to SGX.
Secondly, retail investors do not [This is a premium article. The rest of the content is blocked and can be accessible by SG Wealth Builder Members only. To read the full content, please sign up as member.]