How to Buy ETFs in Singapore: A Beginner's Guide to Investing in ETF

How to Buy ETFs in Singapore: A Beginner's Guide to Investing in ETF
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Investing in exchange-traded funds (ETFs) is an excellent way for beginner investors in Singapore to enter the world of investing. ETFs offer diversification, liquidity, and a wide range of investment options. Whether you are new to investing or planning to invest in Singapore, this guide will provide you with valuable insights into buying ETFs and help you make informed investment decisions.

What is an ETF?

Exchange-Traded Funds (ETFs) are investment vehicles that have gained popularity for their unique characteristics. These funds, which were first introduced in the early 1990s, combine the diversification benefits of mutual funds with the tradability of individual stocks.

An ETF holds a basket of underlying assets, such as stocks, bonds, commodities, or a mix of various investment types. For instance, the SPDR S&P 500 ETF Trust (SPY) tracks the performance of the S&P 500 index, providing investors with exposure to 500 of the largest U.S. companies.

ETFs trade on stock exchanges, allowing investors to buy or sell shares throughout the trading day at market prices. Key indicators to consider when evaluating ETFs include the Net Asset Value (NAV), bid-ask spread, expense ratio, and tracking error.

ETFs offer a flexible and accessible way to build diversified portfolios and have become an integral part of many investors' strategies.

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How Does It Work?

Exchange-Traded Funds (ETFs) function as tradable assets, much like individual stocks. Unlike mutual funds, ETFs are traded throughout the day, with their prices fluctuating as shares are bought and sold on the Singapore market.

ETFs typically represent underlying assets, which can vary from commodities to stocks and bonds. This diversity allows investors to easily diversify their portfolios by holding a single ETF. These funds often consist of hundreds of individual assets across different industries or sectors, providing investors with broad market exposure.

ETFs are known as marketable securities, characterized by their share prices that can be readily bought and sold on market exchanges during trading hours. Additionally, they offer the flexibility of short selling, allowing investors to profit from potential declines in the market.

In summary, ETFs offer a versatile and accessible way to invest, combining the benefits of diversified portfolios with the ease of trading individual stocks.

Pros and Cons of Investing in ETFs

Exchange-Traded Funds (ETFs) have gained immense popularity among investors, offering a range of advantages and disadvantages to consider when building an investment portfolio. Here, we delve into the key pros and cons of investing in ETFs.

Pros:

  1. Diversification:

One of the primary benefits of ETFs is immediate diversification. By investing in an ETF, you gain exposure to a diversified portfolio of assets, which can include stocks, bonds, commodities, or other asset classes. This diversification helps spread risk, reducing the impact of poor performance in any single investment.

  1. Liquidity:

ETFs trade on stock exchanges throughout the trading day, just like individual stocks. This high liquidity enables investors to buy or sell ETF shares at market prices without causing significant price fluctuations. Liquidity is essential for investors who need flexibility in adjusting their portfolios quickly.

  1. Low Barrier to Entry:

Compared to traditional mutual funds, ETFs have a lower barrier to entry. Investors can start with a relatively small amount of capital because ETFs are typically priced per share. This affordability makes them accessible to beginner investors or those with limited funds.

  1. Variety and Flexibility:

ETFs cover a wide range of asset classes, including stocks, bonds, commodities, sectors, and regions. Investors have the flexibility to choose from various ETFs that align with their investment goals and risk tolerance. Whether you prefer to focus on specific sectors or achieve broad market exposure, there's likely an ETF to suit your needs.

  1. Transparency:

ETFs provide transparency in terms of holdings and performance. You can easily track the underlying assets and their performance, allowing for informed investment decisions. This transparency is valuable for investors who want to understand where their money is invested.

Cons:

  1. Management Fees:

While ETFs generally have lower expense ratios compared to mutual funds, they still come with management fees. These fees can erode returns over time, especially for long-term investors. It's crucial to be aware of the expenses associated with each ETF and choose cost-effective options.

  1. Tracking Error:

Not all ETFs perfectly track their underlying indices. A high tracking error indicates that the ETF's performance may deviate significantly from the index it's designed to follow. Investors should research and choose ETFs with a history of closely tracking their benchmarks.

  1. Trading Costs:

While ETFs offer liquidity, investors may incur brokerage fees when buying or selling ETF shares. Additionally, bid-ask spreads can impact the overall cost of trading. Careful consideration of these costs is essential for optimizing your investment returns.

  1. Lack of Control:

Investing in an ETF means entrusting your money to professional fund managers. While this can be an advantage for some, it may limit your control over individual stock selection and portfolio management. If you prefer hands-on control, individual stock investments might be more suitable.

5 Reasons Why People Buy ETFs in Singapore

  1. Diversification

Investing in ETFs provides immediate diversification, which is a key principle of investment that helps to manage risk. An ETF can hold hundreds or even thousands of different securities like stocks or bonds from different industries and countries. This wide coverage means the performance of the ETF does not rely on a single company, industry, or country. Therefore, if one stock in the ETF underperforms, the negative impact is minimized because it is only a small portion of the entire portfolio. This reduces the potential for catastrophic losses that could occur when heavily invested in a single stock or a small group of stocks.

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  1. High liquidity

ETFs trade on the stock exchange just like individual stocks, meaning that they can be bought or sold throughout the trading day at current market prices. This characteristic brings a high level of liquidity, which is the ease with which an investment can be bought or sold without causing a significant movement in its price and with minimum loss of value. This liquidity feature is important for investors who want to maintain the flexibility to quickly adjust their portfolios in response to market changes.

  1. Low barrier to entry

ETFs are known for their affordability. Unlike mutual funds, which often have high minimum investment requirements, ETFs can be purchased for the price of a single share, which can be significantly less. This low barrier to entry makes them an appealing investment vehicle for beginner investors or those with limited capital. It allows these investors to start building a diversified portfolio without needing a large sum of money.

  1. Wide variety of ETFs available

Singapore's market offers a broad selection of ETFs that cover various asset classes, including stocks, bonds, commodities, real estate, and many others. There are also sector-specific ETFs that focus on particular industries like technology, healthcare, or financials, and ETFs that track specific market indices. This wide selection allows investors to tailor their investments according to their risk tolerance, investment goals, and personal interests. For example, investors who want exposure to the growing technology sector can choose a technology-focused ETF.

  1. Accessibility

Investors based in Singapore are encouraged to consider purchasing ETFs from global venues such as the New York Stock Exchange (NYSE), London Stock Exchange (LSE), Tokyo Stock Exchange (TSE), or Hong Kong Stock Exchange (HKEX). This accessibility means that investors can gain exposure to a wide range of local companies and sectors without having to buy each individual stock. Additionally, some ETFs on the SGX also offer exposure to global markets, allowing investors in Singapore to easily invest in overseas companies or sectors. The accessibility of ETFs makes it easier for investors to build a well-diversified and balanced portfolio.

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11 Types of ETFs for Investment in Singapore

Type Short Description of ETF
Stock ETFs Track the performance of a specific stock index, such as the Straits Times Index (STI), providing investors with exposure to a broad range of stocks in a particular market.
Bond ETFs Invest in a diversified portfolio of bonds, offering investors exposure to fixed-income securities with varying maturities and credit ratings.
Commodity ETFs Track the performance of commodities like gold, silver, oil, or agricultural products. They allow investors to gain exposure to commodity prices without directly owning physical commodities.
Sector specific ETFs Focus on specific sectors or industries, such as technology, healthcare, or real estate investment trusts (REITs). They enable investors to target their investments in specific areas of the market.
Country specific ETFs Provide exposure to the stock markets of specific countries, allowing investors to capitalize on the growth potential of specific regions.
Index ETFs Track the performance of a specific index, such as the MSCI Singapore Index. They replicate the index's composition and offer broad market exposure.
Investment Style ETFs Focus on specific investment styles, such as growth or value investing. They provide investors with exposure to companies that exhibit certain investment characteristics.
Socially or Environmentally Conscious ETFs Invest in companies that meet certain social or environmental criteria, allowing investors to align their investments with their values.
Short ETFs (Inverse ETFs or Bear ETFs) Aim to profit from the decline in the value of an underlying index or asset. They provide inverse or leveraged exposure to the market, allowing investors to hedge against potential downturns.
Cryptocurrency ETFs Provide exposure to digital currencies like Bitcoin or Ethereum. They enable investors to participate in the cryptocurrency market without directly owning the underlying assets.
Thematic ETFs Focus on specific investment themes or trends, targeting industries or sectors that are expected to experience significant growth or transformation. Examples include technology, renewable energy, artificial intelligence, robotics, and biotech. This allows investors to capitalise on emerging trends and invest in companies at the forefront of their respective fields.

How to Select the Right ETF to Buy?

When selecting an ETF to buy in Singapore, consider the following factors:

Size

The assets under management (AUM) of an ETF refer to the total market value of the assets the ETF holds. ETFs with higher AUMs are generally more established and have better liquidity, which means that it is easier for investors to buy and sell shares without significantly impacting the price. 

Also, ETFs with substantial AUMs are likely to have narrower bid-ask spreads. This refers to the difference between the price a buyer is willing to pay for an asset (bid) and the price a seller is willing to accept (ask). A narrower spread means lower costs for the investor when entering and exiting positions.

Trading volume

The volume of shares traded each day, or the trading volume, is another important liquidity measure. ETFs with higher daily trading volumes tend to have better liquidity, which makes it easier for investors to buy or sell shares without causing a major shift in the ETF's price. Additionally, ETFs with higher trading volumes generally have narrower bid-ask spreads, which can lower transaction costs.

Underlying Asset or Index

Each ETF is designed to track a particular asset or index. Therefore, it is important for investors to understand what the ETF tracks and how it performs. This includes knowing the composition of the underlying index or asset, its historical performance, and its potential for future growth. The chosen ETF should align with your investment goals, risk tolerance, and overall investment strategy.

Fund manager’s reputation

When selecting an ETF, consider the reputation and market position of the ETF issuer and the fund manager. Established and reputable providers tend to offer more reliable and transparent ETF products. They are also more likely to have strong risk management procedures in place, which can provide investors with an added layer of protection.

Tracking Error

The tracking error of an ETF measures how closely the ETF's performance matches the performance of the underlying index it's designed to track. An ETF with a low tracking error closely follows its underlying index, which means it effectively delivers on its investment mandate. A high tracking error, on the other hand, suggests the ETF deviates significantly from the performance of the index, which could impact your investment returns.

Expense Ratio

Finally, consider the expense ratio, which is a measure of what it costs investors to invest into the ETF. The expense ratio is expressed as fees as a percentage of the fund's average net assets. Lower expense ratios are better for investors because they take away less from your overall returns. This is particularly important for long-term investors, as these costs compound over time.

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How to Buy ETFs in Singapore?

There are several methods for buying ETFs in Singapore:

  • Brokerage Account: Open a brokerage account with a reputable brokerage firm in Singapore. Fund your account and place buy orders for the desired ETFs through the online trading platform provided by the brokerage.
  • Fund Platform: Another method for buying ETFs in Singapore is through a fund platform. Fund platforms provide a convenient way for investors to access a wide range of ETFs from various global venues. These platforms typically offer a user-friendly interface where investors can browse and select from a diverse selection of ETFs. 
  • Regular Savings Plan: Some brokerage firms offer regular savings plans (RSPs) that allow investors to automate monthly investments in ETFs. With an RSP, you can invest a fixed amount regularly, reducing the impact of market volatility.
  • Robo Advisor: You can also consider using a robo advisor platform that offers ETF portfolios tailored to your investment goals and risk tolerance. Robo advisors automate the investment process, making it easy for beginners to start investing in ETFs.
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Costs of Investing in ETFs

When investing in ETFs, it is important to consider the costs involved:

  • Expense Ratio

 The expense ratio represents the annual management fees and operating expenses of the ETF. It is deducted from the fund's assets and affects the overall returns. Look for ETFs with lower expense ratios to minimize costs.

  • Brokerage Fees

When buying or selling ETFs through a brokerage account, you may incur brokerage fees or commissions. Be aware of the fee structure and choose a brokerage with competitive rates.

  • Spread

The bid-ask spread is the difference between the buying price (ask) and selling price (bid) of an ETF. A narrower spread reduces trading costs. Consider trading during periods of high liquidity to minimize the impact of spreads.

Final Thoughts about Investing in ETFs in Singapore

Investing in ETFs provides beginner investors in Singapore with a convenient and diversified investment option. ETFs offer the benefits of diversification, liquidity, and accessibility. By selecting the right ETFs and using the appropriate investment methods, investors can start building a well-rounded investment portfolio.

In addition to ETFs, you can also consider another exciting investment opportunity for Singaporeans - investing in private debt via Kilde. Kilde is a digital investment platform based in Singapore, which allows investors to venture into alternative investment options such as private debt, which may not be otherwise accessible.

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Investing in private debt through Kilde has the potential to generate annual returns of up to 13.5*%. Kilde thus broadens the scope of investment options, complementing the traditional choices like buying ETF in Singapore and offering a diverse path towards wealth creation and financial growth.

For those who are keen on potentially making up to 13.5*% returns on their investments, Kilde could be an excellent avenue to consider. You can sign up with Kilde here or learn more about their unique offerings here.

To sum up, it is vital to understand the different strategies and potential returns of the financial products that you want to invest in. Singapore offers an array of investment opportunities, and the key to success in wealth generation is researching, understanding, and wisely deploying your capital across these investment options.

Sources on How to Buy ETFs in Singapore

1. www.investopedia.com

2. sg.finance.yahoo.com

*KILDE PTE LTD (“Kilde”) is incorporated in Singapore (registration no. 201929587K) is licenced and regulated by the Monetary Authority Singapore and holds a Capital Markets Services Licence (CMS101016) and an Exempted Financial Advisor License under the Financial Adviser Act. The information provided in this marketing material is intended for “accredited investors” and “institutional investors” (collectively “qualified persons”) only. This marketing material, and any information in this marketing material, or any documentation that Kilde provides in relation to this marketing material is provided without any representation or any kind of warranties whatsoever (whether express or implied by law).

This advertisement has not been reviewed by the Monetary Authority of Singapore.

Join Kilde and find out how you can start earning up to 13.5% annual returns

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Radek Jezbera
Founder & co-CEO of KILDE, a regulated platform for alternative investments.
Aleksandra Yurchenko TEST
Aleksandra is managing investor relations at KILDE
Aleksandra Yurchenko
Aleksandra is managing investor relations at KILDE

FAQ

Are there any costs associated with investing in ETFs?

Yes, there are costs involved in investing in ETFs, including the expense ratio, brokerage fees, and bid-ask spreads. It is important to consider these costs when making investment decisions.

What are the advantages of investing in ETFs in Singapore?

ETFs offer diversification, high liquidity, a low barrier to entry, and a wide variety of investment options. They allow investors to gain exposure to different asset classes and sectors easily.

When should I invest in ETFs?

Investing in ETFs can be an excellent strategy for various scenarios. If you aim to diversify your portfolio, ETFs are a valuable tool, providing exposure to a range of different assets, sectors, or geographical regions. They are particularly beneficial for those with limited capital due to their typically lower minimum investment requirement compared to mutual funds. ETFs are also suitable if your goal is to track a specific index or sector performance, as they are designed to mirror certain market indices.

Should I invest in ETFs over stocks?

Choosing between ETFs and stocks depends on your investment goals and risk tolerance. ETFs offer broad market exposure and diversification, reducing risk, making them suitable for those seeking a hands-off investment approach. However, individual stocks can offer higher potential returns if you select high-performing ones and afford more control over your portfolio. Often, investors opt for a balanced mix of both.

How to invest in ETFs in Singapore?

To invest in ETFs in Singapore, you need to have a brokerage account with access to the Singapore Exchange (SGX). Once you've set up and funded your account, you can start trading ETFs just as you would stocks. It's advisable to research different ETFs to understand their performance, management fees, and portfolio composition. You can place an order through your broker's online platform or through a financial advisor who can make trades on your behalf.

What is an ETF in Singapore?

An ETF, or Exchange Traded Fund, in Singapore is a type of investment fund that is traded on the SGX. It pools money from multiple investors to invest in a basket of assets such as stocks, bonds, or commodities. ETFs aim to mirror the performance of an index, sector, commodity, or other assets. They offer diversification, low expense ratios, and the flexibility of being traded like individual stocks.

Where can I buy ETFs in Singapore?

ETFs in Singapore can be purchased through any SGX-registered brokerage firm. You can either buy them online via the brokerage’s trading platform or through a financial advisor who can guide you through the process. Ensure you're aware of the brokerage fees and the operating expenses of the ETF itself before making the purchase.

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