The convenience of investing, flexible market access, diversification options, and a low fees tructure have contributed to the adoption of Exchange Traded Funds (ETF) by individual investors, robo-advisers, wealth planners, and institutions as part of their investment portfolios.

What is an ETF?

As its name implies, Exchange Traded Funds are investment funds that trade on the stock exchange. Whilst it is a pool investment instrument like a unit trust, it differs in its investment strategy by tracking a specific index. Thus, through a single ETF trade, an investor gains diversified exposure to all the constituents of the corresponding index. The index constituents are published publicly every day, giving ETF investors the appeal of transparency.

INDEX - The Kuala Lumpur Composite Index, Standard & Poor's 500, and Dow Jones Islamic Market U.S. Titans 50 are examples of indices. An ETF tracking an index aims to mimic the composition and performance of the identified index.

Did you know?

When a company in the ETF index constituent performs poorly, it is replaced with a better performing one by the index provider, following the index criteria. This transition occurs seamlessly, requiring no effort from investors. It reflects the dynamic nature of ETFs, offering a hands-off yet strategic approach for navigating changing market conditions. This periodic review process of the index is known as Index Rebalancing.

Product Comparison
ETFsUnit Trust FundsStocks
Buy / SellTraded via broker on a public marketSold by agents through private channelsTraded via broker on a public market
Investing ObjectiveTo match the performance of an index, the ETF’s fund manager will ensure the alignment between the ETF’s return and the index it follows.To outperform a selected benchmark using the capability of the fund management company and its fund managers’ skillsTo find winning stocks, investors select stocks individually based on their preferences.
Management TypePassively ManagedActively Managed-
Real-timeYes, continuous trading and pricing throughout the trading day.NoYes, continuous trading and pricing throughout the trading day.
Holding TransparencyReported dailyReported monthlyNot Applicable
Annual Management FeesUsually is less than 1%Can be up to 5%-
Entry FeesUsually is less than 1%for brokerage fee, clearing fee, and stamp dutyUp to 5.5% of upfront sales feeUsually is less than 1% for brokerage fee, clearing fee, and stamp duty
Minimum Investment AmountNo minimum investment amountMost Unit Trust Funds require an initial minimum investment of RM1,000.No minimum investment amount