What You Need To Know About ETFs In Malaysia

by | Sep 11, 2018 | Portfolio Investment

What are ETFs?

ETFs are “Exchange Traded Funds” listed on the stock exchange. When you buy an ETF, you buy a number of stocks/bonds/other investments which represent an index.

 

Pros

  • Lower fees compared to mutual funds/unit trusts
  • Diversification (An ETF invests in many things)
  • Trading of ETFs are the same as stocks
  • ETFs may pay dividends that are usually tax-free (in countries which have investment income taxes) until you sell
  • An index – an ETF mirrors an index – generally outperforms the average stock investor

 

Cons

  • An ETF can be volatile, especially if it focuses on only one sector.
  • ETFs charge brokerage and other fees (it’ll add up if you make many transactions)
  • Some ETFs are not heavily traded (low volume/liquidity) because there aren’t many buyers and sellers.

 

Buying an ETF

The fees for buying and selling an ETF are similar to stocks. This includes brokerage commission, stamp duty and clearing fees.

ETFs are traded in minimum lots of 100 units in Bursa Malaysia and as low as 1 unit in international markets. You should keep an eye out for commission free or very low fee ETFs if you are planning to invest for the long-term using dollar-cost averaging.

 

Should I invest in ETFs?

Here are some questions you should ask yourself before investing in ETFs:

  • What is my investment timeline and objective?
  • What is the investment objective and strategy of the ETF?
  • What is the dividend policy (if any) of the ETF?
  • What fees and charges do I have to pay?
  • How reliable and trustworthy is the company managing the ETF?

Note: Most Malaysian ETFs have low trading volume. However, the SPDR S&P 500 ETF ($SPY) in the U.S. is the 2nd most actively traded fund in the whole world.

 

“After I die, I would put my money into a super-simple, ultra-low-cost, index fund which tracks the 500 biggest companies in America… otherwise known as the S&P 500. I believe the long-term results from this policy will be superior to those attained by most investors… whether pension funds, institutions, or individuals… who employ high-fee managers”

~Warren Buffett