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What Is The Difference Between ETFs And Low-Cost Index Funds?

DollarsAndSense Answers:

Both exchange traded funds (ETFs) and index funds are investments that track an underlying index. This has become an increasingly popular way to invest as they:

# 1 Allow investors to take a passive investment approach;

# 2 Are low-cost compared to active fund management;

# 3 Offer investors a diversified investment, with a single investment of as low as $1,000 or even $100;

# 4 Enable investors to receive close to market returns (while also mitigating any manager risk – the risk of an investment manager making wrong investment decisions)

Read Also: Step-By-Step Guide To ETF Investing In Singapore

So, now that we’ve established how they are similar, let’s try to resolve our user’s question.

The biggest difference between ETFs and index funds is that ETFs are listed on stock exchanges, while index funds are not. This means you can buy or sell ETFs like any other listed stocks via a brokerage account, while you can only buy or sell index funds, similar to unit trusts or mutual funds, at the end of the trading day at its Net Asset Value (NAV).

Read Also: The Pros And Cons Of Building An ETF-Only Portfolio

Being listed and unlisted securities respectively, there are different transaction costs associated with investing in ETFs and index funds. There is a minimum brokerage fee of close to $30 when we invest in ETFs. The cost of investing in index funds can vary from 0% to about 5%.

ETFs are also generally stored in your Central Depository (CDP) account. Index funds aren’t listed, and there are generally platform fees for a custodian account to consider.

How Can Investors In Singapore Buy The S&P500 Index Fund/ETF?

The S&P500 is a benchmark index for the strongest 500 companies listed on the New York Stock Exchange (NYSE) or the NASDAQ.

For investors in Singapore, the easiest way to gain exposure to the S&P500 is to buy the SPDR S&P500 ETF Trust (SGX:S27), listed on the Singapore Exchange (SGX) since 1993. We can buy and sell this similar to how we buy and sell other locally listed stocks.

Read Also: How Singaporeans Can Start Investing In Overseas Stocks, By Looking At The World Around Us

Of course, index funds offer investors another way to gain exposure to the S&P500 index. Platforms such as iFast’s FSMOne and Aviva’s Navigator offer several index funds that either track the S&P500 benchmark in full or use it as part of its benchmark.

This includes Infinity US 500 Stock Index SGD (tracking the S&P500 index) or the Neuberger Berman US Equity Index PutWrite Fund USD A Accumulating Class (with 85% of its benchmark tracking the S&P500 index).

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