STI ETF is one of the more popular recommendations for first investments that you hear about. Unfortunately, there are also many misconceptions and confusion about it, since you need to have a prior understanding of a few terms and concepts.
For example, did you know that there is no way to actually buy the STI? Or that if your STI ETF delivered substantially greater returns compared to the STI, you should be concerned?
Here is everything you need to know about investing in a STI ETF.
What Is The Straits Times Index?
The Straits Times Index (STI) is Singapore’s benchmark index, consisting of the 30 largest and strongest blue chip companies listed on the Singapore Exchange (SGX). In fact, companies on the STI account for more than 70% of the total value of all companies on SGX. As such, the performance of the STI is often cited as one indicator of how the Singapore’s stock market and economy is doing.
You can refer to the full list of the STI Constituents, which is reviewed every quarter to see if any of the companies has weakened enough to warrant them being removed from the STI, and another company taking its place. As such, the STI is always a snapshot of Singapore’s market today. It contains household names you’ll be familiar with and even interact with on a daily basis, such as DBS, Singtel, CapitaLand, Keppel Corp and more.
The STI is an index, which is calculated from the performance of individual stocks. As such, you cannot “buy the STI”. For those who wish to gain exposure to the performance of the STI, they can buy into an Exchange Traded Fund (ETF) that seeks to replicate the performance of the STI.
What Is An ETF?
An Exchange Traded Fund (ETF) is a fund that seeks to passively mimic the performance of the market it is tracking. The ETF manager’s job is not to make smart investments to grow your investment returns, but to diligently ensure that the ETF continues to represent the index as closely as possible by performing rebalancing and other tasks.
Since ETFs do not attempt to do active trading to try to beat the market, fees for ETFs are lower than traditional mutual funds, also known as unit trusts. Because ETFs are traded on the stock market, you can also buy or sell them any time.
To learn more about ETFs, you can refer to these articles we written previously:
Here’s Why We Think Your First Stock Investment Should Be The STI ETF
What Is A STI ETF?
There are currently two ETFs that track the performance of the STI:
SPDR Straits Times Index ETF (SGX: ES3)
Nikko AM Singapore STI ETF (SGX: G3B)
The key difference will lie in how well they track the STI and the fees they charge. Since an ETF’s job is to track the performance of their chosen index closely, any deviation, even “positive” ones should be a sign of concern that the ETF isn’t doing an accurate job.
Just like the STI, these ETFs are market-weighted, so value of stocks they hold is in proportion to the capitalisation (total market value) of the company. As years go by and stocks on STI are reviewed, added or removed from the index, these STI ETFs will automatically buy and sell these companies accordingly.
How Can I Invest In A STI ETF?
There are 3 main ways for Singaporeans to invest in a STI ETF: 1) Invest through a brokerage; 2) Invest through a monthly investment plan; 3) Invest with your CPF OA monies.
Method 1: Invest In A STI ETF Through A Brokerage
Since both the SPDR and Nikko AM ETFs are traded on SGX, you can simply invest by buying it through a stock brokerage the same way you would buy an individual stock.
For those who have not invested in stocks before, we have written a step-by-step guide to buying your first stock, and also compiled a comprehensive list of the online stock brokerages in Singapore and their fees.
Method 2: Invest Using Regular Shares Savings (Monthly Investment Plan)
Regular Shares Savings (RSS) plans, also known as monthly investment plans, is another good way to invest into a STI ETF over time, with starting capital of as little as $100 a month.
Benefits of this approach are simplicity (you set up a RSS plan online or at an ATM) and the fact that it allows you to practise dollar-cost averaging implicitly.
Method 3: Invest Using CPF Investment Scheme
You can also use your CPF Ordinary Account to invest in a STI ETF. It is one of the four approved ETFs that can be invested under the CPF Investment Scheme (CPFIS). To do so, you need to apply a CPFIS scheme account with one of the local banks and link it up with your brokerage account.
The process of buying the STI ETF using CPF monies is the same as you would do with cash, you just need to indicate on your brokerage platform that you are using CPF to pay for the shares. You can invest as much as you like after the first $20,000 in your CPF Ordinary Account.
Get Started Today!
If you continue to believe in the strength and potential of the Singapore market, then investing in a STI ETF should be a natural expression of that belief. The STI continues to show great growth potential, delivering enviable returns.
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