A Guide To Exchange-Traded Funds (ETFs) In Singapore
Investing has become part and parcel of life in today’s society. More often than not, you find yourself wrapped up in conversations about popular stock prices in Singapore. But why do people spend so much time and energy on investing? Well, investments are necessary to outpace inflation and grow wealth in Singapore.
Have you heard of exchange-traded funds (ETFs)? It is a popular investment vehicle for novice and seasoned investors alike. If you are a newbie, investing in ETFs is a simple and cost-effective way to kick-start your investment journey in Singapore.
All You Need to Know About ETFs in Singapore
An exchange-traded fund (ETF) is a collection of securities that tracks a particular index, sector or commodity. It is a fund that holds multiple underlying assets. Listed on the stock exchange, ETFs are traded throughout the day. Examples of ETFs include stock ETFs, bond ETFs, commodity ETFs, sector-specific ETFs and country-specific ETFs.
Investors use ETFs to diversify their investment portfolio and gain exposure to different sectors. By investing in an ETF, investors have access to a range of companies within the fund. For example, the Straits Times Index (STI) ETF allows investors to gain exposure to leading companies in Singapore, such as Oversea-Chinese Banking Corporation Limited, United Overseas Bank Ltd. (Singapore), and Singapore Telecommunications Limited.
A Singaporean investor can potentially achieve a positive return from ETFs through dividends or a rise in the ETF market price. The value and stock price of an ETF investment is usually positively correlated
Why Should You Invest in ETFs?
1. Diversify Your Investment Portfolio
Heard of the phrase, “Do not put all your eggs in one basket” before? Diversification is crucial to minimise the risk of loss. Exchange-traded funds help to diversify your investment portfolio as it typically covers major asset classes and sectors. Exposure to a wide variety of stocks and bonds helps prevent unwanted risk to your capital and maximise your returns. Hence, ETFs are a popular choice for diversification, as you prevent your investments from being too heavily weighted towards a single company or sector.
2. Ideal for Beginner Investors
New to investing? ETFs could be the perfect way for you to get started. Firstly, you do not need extensive knowledge of investments to begin. A seasoned investor needs to understand basic investment principles. It is necessary so that they can regularly rebalance their portfolio. However, an ETF investor does not need to rebalance the assets in the fund, as it is done for them. Secondly, it is ideal for young investors because you only require a relatively low capital amount to start investing. Lastly, purchasing an ETF allows you to own multiple shares in different companies through a single purchase. You save time researching and analysing companies to invest in, as it is done for you.
3. Flexible Trading for Singaporean Investors
ETFs offer more trading flexibility as they are traded like stocks. ETFs are priced based on what investors think the market value is. Hence, you can actively buy and sell shares throughout the day.
Drawbacks of ETFs
1. Potential Market Risk
The stock market can be unpredictable. This means that stock prices in Singapore can fluctuate at any time. A common risk that investors face when buying exchange-traded funds is market risk. Market risk occurs when there are fluctuations in ETF prices. It happens when there is a rise and fall in the value of the underlying securities and assets.
2. Lack of Control Over ETF Investments
An investor does not have control over the securities and assets in an ETF. A Singaporean investor might like a particular stock in an ETF. However, if the index removes that stock, an investor has no say over what happens to the ETF.
How to Trade ETFs in Singapore
In Singapore, there are two common ways to trade exchange-traded funds – through a brokerage account or a regular savings plan.
Regular Savings Plans
Did you know that you can invest in ETFs through a regular savings plan? All you need to do is pay a fixed sum of money regularly. The deposited money will be invested in ETFs, REITs or blue-chip stocks.
Why are regular savings plans so popular among Singaporean investors? Regular savings plans manage market risk with dollar-cost averaging. Volatility is inherently present in financial markets. One way to mitigate volatility risk is through dollar-cost averaging. Dollar-cost averaging reduces volatility risk by lowering the overall cost of investing as you invest a fixed and regular sum of money, regardless of market conditions.
Regular Savings Plans in Singapore
| Regular Savings Plan | Fees | Counters |
|---|---|---|
| DBS Invest-Saver | 0.50%-0.82% | Nikko AM Singapore STI ETF, ABF Singapore Bond Index Fund, Nikko AM SGD Investment Grade Corporate Bond ETF, Nikko AM-Straits Trading Asia ex Japan REIT ETF |
| Saxo Regular Savings Plan | 0.25-0.75% service fee | BlackRock Defensive RSP Portfolio, BlackRock Moderate RSP Portfolio, BlackRock Aggressive RSP Portfolio, LionGlobal Dynamic Growth: Asian Perspective RSP Portfolio |
| OCBC Blue Chip Investment Plan | 0.88% (for customers below 30 years old), otherwise 5% | 21 Counters including CapitaLand Limited, DBS Group Holdings Limited, Keppel Corporation Limited, Singapore Airlines Limited, United Overseas Bank Limited etc. |
Brokerage Accounts in Singapore
Saxo Markets
| Market | Classic | Platinum | VIP | |
|---|---|---|---|---|
| Singapore | 0.15% | 0.12% | 0.10% | |
| US | USD 0.02 | USD 0.15 | USD 0.01 | |
| Japan | 0.15% | 0.12% | 0.10% | |
| HK | 0.15% | 0.12% | 0.10% | |
| Australia | 0.10% | 0.07% | 0.05% | |
Tiger Brokers
| Market | Tiger Brokers Fee | Min Commission | Platform Fee | |
|---|---|---|---|---|
| Singapore | 0.06% | SGD 1.99 | 0.03% (min. SGD 1 per order) | |
| US | $0.01 per share | USD 1.99 per order | USD 0.005 (min USD 1 per order) (max 0.5% per order) | |
| HK | 0.06% | HKD 15 | 0.03% (min HKD 8 per order) | |
| China | 0.06% | RMB 15 | 0.03% (min CNH 8 per order) | |
| Australia | 0.10% | AUD 8 | 0.07% (min AUD 6 per order) | |
moomoo by FUTU
PROMO: Transfer your assets to Moomoo SG and receive up to S$1,000* in rewards!
| Market | moomoo Brokers Fee | Min Commission | Platform Fee | |
|---|---|---|---|---|
| Singapore | 0.03% | SGD 0.99 | 0.03%(min. SGD 1.50) | |
| US | USD 0.0049 | USD 1.99 | USD 0.005(min. USD 1) | |
| HK | 0.03% | HKD 3 | HKD 15 | |
| China A | 0.03% | CHN 3 | - | |
Syfe Trade
| US Stocks & US ETFs | Commission-Free Trades a month | |
|---|---|---|
| Five free trades a month^ | USD0.99 flat fee^ | |
| After Introductory Offer | ||
| Two free trades a month | USD1.49 fee | |
For a start, the Singapore online brokerage is giving every investor five free trades per month, and thereafter a flat fee of USD 0.99 per trade, during its introductory offer which will end at the first quarter of 2022. Even after its introductory offer comes to an end, Syfe Trade remains extremely competitive by giving its investors two free trades per month, and a flat fee of USD 1.49 per trade.
Kickstart Your Investment Journey in Singapore Today
What are you waiting for? Grow your money by investing in exchange-traded funds through regular saving plans or brokerage accounts in Singapore. Do remember to conduct your due diligence before making any financial decisions. For example, you can look at historical data to see how the ETF performed against the index it tracks.
With the impending GST hike, there is no doubt that the cost of living will continue to rise. To keep up with inflation, you should start investing. Investing helps you grow your wealth and achieve financial goals. Be on the road to financial freedom today!
Christopher is a licensed financial adviser and a General Insurance Broker with PolicyPal. He has nine years of experience in the insurance industry with various notable companies including Chubb, AVA, AIA, NTUC Income, and more. Today, Christopher helps to oversee the insurance content on ValueChampion and bring business growth to PolicyPal.