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What are Exchange Traded Funds (ETFs)
ETFs are investment funds listed and traded on a stock exchange. It is a security that tracks the performance of an index, commodity, or basket of assets similar to Unit Trusts and provide investors access to a range of markets and asset classes. You can buy and sell an ETF though the stock market just like an ordinary share. ETFs are passively managed by ETF fund managers and do not try to outperform the underlying index.
An ETF can be traded at any time during the trading day at the prevailing market price. A delayed feed of the last traded market price is available on the website throughout the day.
Fund managers of an ETF disclose their portfolio holdings daily making it more transparent.
ETFs are designed to mirror an index and not outperform the market; hence are passively managed by fund managers and have cheaper management fee.
What are Unit Trusts (UT)?
It is a security that buys into a basket of assets (stocks, bonds, and other investment instruments) actively managed by a fund manager. The value of each portfolio is the sum of the value of the investments (stocks, bonds) which they hold. You own a portion of the portfolio when you purchase a 'unit' of it. That is it!
Unit Trusts can only be purchased and redeemed once a day and the price at which you buy (or sell) is based on the "snap-shot" value of all the underlying assets in the fund as at 3pm each day. The daily value of the fund is referred to as the Net Asset Value (NAV).
Fund managers of a Unit Trust report their portfolio holdings on a monthly or quarterly basis.
Fund managers of Unit Trusts will actively manage to beat the market and will have a higher propensity to get better returns.
COMMON TERMS OF UNIT TRUST & ETF
Exchange Traded Funds (ETF)
Investment funds listed and traded on the stock exchange. They generally track an index and are passively managed.
Most unit trusts are open-ended, invest according to an investment objective, and are actively managed.
A unit trust which is invested in the exact same stocks (but may be in slightly different proportions) as a particular Index. It usually charges very low fees. Index funds are normally maintained by computerised orders.
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