Exchange-traded funds (ETFs) in Singapore are investment vehicles that track the financial performance of an underlying index or basket of assets. ETFs are traded on a stock exchange, much in the same way as stocks, according to their market price, which fluctuates throughout the day. They offer broader exposure than buying individual stocks and may provide investors with diversified portfolios with low costs and minimal trading fees.
In Singapore, four main types of ETFs are available: bond ETFs, commodity ETFs, equity ETFs, and currency ETFs. Bond ETFs track indices such as government bonds issued by countries or corporations. These investments typically provide steady income through coupon payments but do not produce high capital gains.
Commodity ETFs track commodities indices such as red gold, oil and other precious metals. Equity ETFs track stocks or equity indices of local or foreign markets. Currency ETFs are also available for diversifying their portfolios with different currency exposure. These types of investments provide investors with an extra source of income through the appreciation in the value of the underlying currencies.
The advantages of investing in exchange-traded funds in Singapore
Here are some advantages of investing in exchange-traded funds in Singapore, outlined below.
Broad market exposure
A benefit of investing in ETFs is that they provide broad market exposure. By holding multiple assets in one portfolio, investors can gain access to a diversified range of markets and asset classes that may be difficult or costly for them to access individually. For example, equity ETFs track large numbers of equities across different sectors and geographical regions, which helps to reduce the risk of an investor’s portfolio being overly exposed to a particular sector or region.
Flexibility
ETFs provide flexibility in trading. Investors can easily buy and sell their investments on the stock exchange without brokerage charges. Furthermore, they are less prone to market volatility than investing in individual stocks because the underlying assets within an ETF are typically spread out over different sectors and indices. It means that if one asset declines in value, it may be offset by other assets that have increased in value, thus reducing the overall impact on investors’ portfolios.
Diversification
Diversification is a vital benefit of investing in ETFs because they provide exposure to multiple asset classes, such as stocks, bonds, commodities, currencies, or a combination of these instruments simultaneously, which reduces the risk associated with investing in any security since it allows investors to spread their investments across different sectors or countries, which can offset losses from individual actions. Additionally, ETFs offer greater geographic diversification by providing access to international financial markets that may not be available through traditional stock market indices.
Cost savings
Cost savings are another advantage of ETFs because they have lower expense ratios than mutual funds. ETFs usually track a pre-defined index, so portfolio management is more straightforward and less costly than actively managed mutual funds, which results in fewer expenses for investors. Additionally, because ETFs are traded throughout the day on the open market, investors can buy or sell their shares anytime without waiting for a specific settlement date. It allows them to take advantage of price movements during trading and potentially reduce costs incurred from buying and selling shares.
Accessibility
ETFs are also more accessible than other investments due to their low minimum requirements. Most Singaporean exchanges require only a few hundred dollars to start investing in ETFs, making them an attractive option for investors needing more capital to invest in mutual funds in Singapore or other types of investments. Additionally, ETFs can be bought and sold through more traditional platforms, such as brokerages like Saxo Bank, making them easy to access and manage.
Liquidity
ETFs also offer high liquidity because they are actively traded throughout the day on the open market. It makes it easy to buy and sell shares without incurring significant transaction costs, which benefits short-term traders who need to enter and exit positions quickly. Furthermore, ETFs are often less volatile than individual stocks, allowing Singaporean investors to diversify their portfolios while still having access to liquid markets.
The bottom line
ETFs offer many benefits, making them desirable for investors in Singapore and worldwide. They offer diversification, cost savings, accessibility, and unavailable liquidity with many other investments. ETFs have become increasingly popular due to these advantages, making them an attractive option for Singaporean investors looking to build a portfolio or take advantage of volatile markets.