What are Exchange Traded Funds (ETFs) and How to Invest in Them in Singapore

ETFs saw record-breaking inflows in 2024, particularly in Europe. As 2025 approaches, many expect to see innovations in crypto ETFs, though demand remains to be seen. Besides being an asset class for retail investors, ETFs are also a hot investment vehicle used by robo-advisors to curate portfolios for their customers.

An ETF is a fund traded on the stock exchange that consists of a basket of securities, such as stocks, bonds and commodities. ETFs seek to track the performance of an index, such as the S&P 500 Index or the Straits Times Index (STI), making them a great investment choice for passive investing. These ETFs are also listed on financial markets such as the New York Stock Exchange, NASDAQ and Singapore Stock Exchange (SGX).

For example, the STI tracks the top 30 companies listed on the SGX. Rather than individually purchasing stocks such as DBS, CapitaLand, Singtel and Dairy Farm to make up your portfolio, you can instead purchase a single product that is an STI ETF.

Beyond shares, there are also ETFs available for other asset classes. Read these articles to find the best Singapore ETFs and the best US ETFs.

ETFs are a great way to ease yourself into investing if you’re not confident in individual stock picking. With an ETF, you gain exposure to a basket of stocks, bonds or other asset classes depending on the ETF you invest in. 

This helps to diversify your portfolio at a low cost. Diversification helps you to reduce your investment risk by not having all your eggs in one basket.

ETFs are traded on the open market. This makes them highly liquid as investors can choose to buy and sell the ETF at any time. All that’s required for you to purchase an ETF is a brokerage account and your Central Depository (CDP) account.

With an ETF, you can invest in top companies at a fraction of the price without having to meet minimum investment amounts. 

For example, the STI ETF today ranges around $2.51, while a single stock of a company within the STI, like DBS, stands at about $20. The same applies to other markets. The price of Amazon shares is more than USD$3,000 while the SPDR S&P 500 ETF is priced at USD$328.

From a cost perspective, it could be more expensive for an investor to purchase these individual stocks to make up their own portfolio as compared to purchasing a bucket of stocks in a single ETF.

With thousands of ETFs available on the market, you can choose ETFs from different asset classes, geographies, industries, countries and stock exchanges. How you select your ETFs would depend on your investment goals, preferences and what’s in your current investment portfolio.

Stock ETFs refer to ETFs made up of a portfolio of stocks to track an index, such as the S&P 500 Index. One of the most popular ETFs available is the SPDR S&P 500 ETF, which is made up of the common stocks included in the S&P 500 index. The S&P 500 index consists of the largest 500 companies listed on stock exchanges in the US. 

Other examples of ETFs that track stock indexes include: 

• Invesco QQQ ETF that tracks the Nasdaq 100 Index

• SPDR Dow Jones Industrial Average ETF that tracks the Dow-Jones Industrial Average 

Bonds or fixed income ETFs are made up of various types of bonds or fixed income products. They are a low-risk asset class that usually appeals to risk-averse investors. While bonds generally have lower returns when compared to stocks, they offer stability to a portfolio with their steady and fixed interest payments. 

Examples of bond ETFs include: 

• ABF Singapore Bond Index Fund

• Nikko AM SGD Investment Grade Corporate Bond ETF

Commodities can be a good hedge against inflation, and they are at times negatively correlated to other asset classes, such as stocks and bonds. Commodity ETFs consist of a basket of commodities like gold, silver and oil. They can also include companies that produce agricultural products like corn, grain and livestock.  

Examples of commodity ETFs include: 

• SPDR Gold Shares ETF

• iShares Silver Trust

• iShares MSCI Global Agriculture Producers ETF

If you are looking to invest in a specific sector such as real estate, healthcare, technology or energy, you can invest in an ETF instead. An example is Real Estate Investment Trusts (REITs) – with dozens of REITs available on the SGX, many investors are spoiled for choice. Instead of taking the time to analyse and cherry-pick your REIT winners, you can consider investing in the entire sector with a REIT ETF. 

REIT ETFs include:

• NikkoAM-Straits Trading Asia Ex-Japan REIT ETF 

• Phillip SGX APAC Dividend Leaders REIT ETF

• Lion-Phillip S-REIT ETF

Beyond REITs, there are also other ETFs available such as the Invesco China Technology ETF that specifically tracks technology stocks in China. Meanwhile, the Vanguard Health Care ETF consists of stocks involved in medical or health care products, services, technology, or equipment.

ETFs are also how you can increase your exposure to a country’s market. For example, if you’re looking to start investing in Singapore stocks, you can consider an ETF that tracks the STI, such as the SPDR STI ETF or the Nikko AM Singapore STI ETF.

Alternatively, you can gain exposure to popular overseas markets such as the US and China with ETFs that track their markets. Examples include:

• SPDR S&P 500 ETF

• iShares MSCI China ETF

All investments come with a fee. When it comes to the ETFs, here are the costs you have to consider. 

• Expense ratio: The annual rate or fee the fund charges on the total assets you hold. This fee helps to cover the cost of portfolio management, administration costs and more.

• Commission fees: Fees paid to the broker when you buy or sell on your brokerage platform. There could also be a minimum commission fee required. The more transactions you make, the more commission fees you incur. 

If you are purchasing ETFs listed on US stock exchanges, do note that your dividends and bond coupons will be subject to a 30% US withholding tax.

Now that you have a better idea of what ETFs are and the various types you can invest in, here are three ways you can get started. 

As with other investments you make, such as purchasing a stock on the SGX, you can also purchase an ETF on the open market. To do this, you’ll first need to open a brokerage account as well as a CDP account. These accounts typically do not have account minimums, transaction fees or inactivity fees.

With a brokerage account, you can then purchase an ETF of your choice at a price you’re comfortable with.

Alternatively, you can consider opening an account with a robo-advisor, such as Stashaway and Autowealth. Robo-advisors offer portfolios that are curated and tailored towards your investment goals, preferences and risk appetite. In turn, you can own a portfolio that consists of various types of ETFs through a single investment with the robo-advisor.

Additionally, these portfolios typically offer automatic rebalancing and the option for you to add to your portfolio every month.

Robo-advisors typically carry a low annual fee of about 0.25% of your account balance, making them relatively accessible. However, do keep in mind that not all robo-advisors invest using ETFs as some select individual stocks or unit trusts instead.

A regular savings plan (RSP) is one that allows you to invest a predetermined amount each month, starting from as little as $50. An RSP encourages investors to make regular investments and makes it possible for new investors to get started.

RSPs like DBS/POSB Invest Saver allow you to invest in ETFs, such as Nikko AM STI ETF and ABF Singapore Bond Index Fund. There are also providers like FSMOne and dollarDEX that allow you to start an RSP by investing in ETFs of your choice.

With your accounts set up, you can now decide on what ETFs to buy. If you’re unsure of how to choose your ETFs, many brokers provide screening tools that can help you filter out the options based on various criteria, such as your preferred asset types, geographical location, industry, trading performance and fund provider.

Here are some other factors you can consider when narrowing your options using the screening tool:

• Expense ratio: As mentioned, this ratio refers to the annual rate or fee the fund charges on the total assets you hold. As such, the lower the expenses are, the better it is for your profit.

• Commissions: These are fees paid per transaction when you buy or sell an ETF. While many major online brokers do not charge commission fees, it’s a good idea to check before buying.

• Volume: This figure indicates how many shares have traded hands over a given time period, signalling the popularity of that particular fund.

• Holdings: The top holdings in a fund refers to the individual companies the fund invests in.

• Performance: Consider a fund's long-term performance over three to ten years to get a sense of how it has performed historically.

• Trading prices: ETFs trade like stocks, so the current prices will determine how many shares you can afford to buy.

Much like all other investments, ETFs come with a degree of risk. Before selecting an ETF to invest in, you should first make sure you have your financial safety nets in place. Your ETF investment can be a little more worry-free if you have your emergency funds down pat, or if you’ve paid off outstanding high-interest rate loans.

Now that you’ve decided on the ETFs you want to buy, here’s how you can place the trade:

• Navigate to the “trading” section of your brokerage’s website to buy the ETF using its ticker symbol.

• Execute the order after double-checking your order details, such as the ETF’s ticker symbol, order type, and number of shares.

Here is a glossary of terms that you may encounter in the process:

• Ticker symbol: An abbreviation that is the ETF’s unique identifier.

• Price: The current trading price, which is determined by the highest price buyers are willing to pay (‘bid’) and the lowest price sellers will take in exchange (‘ask’)

• Number of shares: The quantity of shares that you’re buying.

• Order type

• Market order: An order to buy or sell immediately at the best available price

• Limit order: An order to buy only at a specified price or lower.

• Stop order: An order to buy once a specified stop price has been reached, executing the order in full.

• Stop-limit order: When the stop price is reached, the trade turns into a limit order. These orders are filled until the specified price limits can be met.

• Commission: The service fee charged by the brokerage for every transaction.

• Funding source: The bank account that you’ve linked to your brokerage account, from which you will pay for the cost of your ETF purchase.

ETFs may not be the investment choice for everyone. If you’re wondering how to decide if buying ETFs is the right choice for you, here are some things to consider first:

• Variable returns: While you would want higher returns, you should be prepared for the possibility that you might lose all or a substantial part of your investment.

• Returns calculation: Be aware of how returns are calculated and the factors that can affect them.

• Risks: Have a clear understanding of the risks associated with the ETF and its use of derivatives before you invest.

• Time horizon: Be prepared to have your money tied up for longer periods of time to be able to ride out short-term price fluctuations. That said, some ETFs may also be suitable for short-term trading, so look out for those if that is your investment objective.

• History: Get familiar with the ETF manager and its track record to have an idea of how it might perform in the future.

• Market risk: When trading in ETFs, you will be exposed to market risks and the volatility of the tracked benchmark.

• Tracking error: An ETF’s Net Asset Value (NAV) may not change in proportion to the price changes of the index. Furthermore, execution costs, investment constraints and timing differences may also contribute to tracking error.

• Foreign exchange risks: If the ETF you buy is of a base currency different from your own, you may be exposed to losses resulting from currency fluctuations.

• Liquidity risk: Pricing inefficiency from low trading volumes or large bid-ask spreads may result in greater losses.

• Risks from securities lending: As some assets may be used for securities lending, there is some level of risk that the borrower could default on the securities.   

Read these next:
Best US Exchange Traded Funds (ETFs) To Invest In (2021)
Best ETFs In Singapore For Tracking Stocks, Bonds And REITs
Guide To Real Estate Investment Trusts (REITs), And Whether You’re Ready For It
Best Robo Advisors To Auto-Pilot Your Investments In Singapore
SPDR STI ETF vs Nikko AM STI ETF: A Comparison In A Jiffy

Similar articles
SPDR STI ETF vs Nikko AM STI ETF: A Comparison In A Jiffy
Best US Exchange Traded Funds (ETFs) To Invest In (2021)
Best ETFs In Singapore For Tracking Stocks, Bonds And REITs
How to Build a Passive Income Portfolio Using ETFs (And Why You Should)
This Is One S&P 500 ETF You Might Want To Avoid
Guide to Value Investing, and Why You Should Consider Value ETFs
4 Investing Strategies To Navigate Singapore’s Stock Market
Building A S$100,000 Net Worth By 30: Is It Possible?