What is an ETF?
Generally, exchange-traded funds (ETFs) are index-tracking funds that are listed and traded on a stock exchange like stocks. What are the key features of an ETF?
In general, an ETF has the following features:
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An ETF is designed to track performance of an index (e.g. KLCI, bond index, etc.)
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An ETF is structured as a unit trust while it is also tradable on the stock market, i.e Bursa Malaysia like stocks, during the usual trading hours. Investors can buy or sell ETFs through their licensed stockbrokers anytime during trading hours
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There are two types of fees and charges, i.e the fund management fees (management fees and other administrative costs) and trading costs. The fund management fees are usually deducted from an ETF’s assets, and its net asset value (NAV) will be affected accordingly. Trading ETFs on Bursa Malaysia will also incur transaction costs, such as brokerage fees, stamp duty, etc.
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- Net asset value and trading price
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Each ETF has a NAV that is calculated with reference to the market value of the securities held. However, the trading of ETFs on the Bursa Malaysia, like that of a stock, is determined by the demand and supply of the market. Investors must bear in mind that the trading price of an ETF may not be equal to its NAV.
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An ETF may or may not distribute dividends, depending on its dividend policy.
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Like any other authorised funds, an ETF has to comply with the relevant regulatory requirements imposed by the SC. Investors must note that the SC’s authorisation does not imply its endorsement of any particular product.
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