
ETFs and unit trusts are simply portfolios comprised of several of individual investment products (such as stocks, bonds, money market instruments, and alternative assets, to name a few) and hence they are also termed ‘Collective Investment Schemes (CIS)’. As a recap from an earlier section on ETFs & Unit Trusts, we have summarised the similarities and differences between both products in the table below.
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ETF |
Unit Trust |
Structure |
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Broad Categories |
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*Risks |
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Challenges in replicating the underlying index exactly include requiring large buy and sell orders which may not be easily fulfilled and the transaction costs incurred when buying and selling underlying securities which would reduce the overall returns of the ETF. |
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Pricing per Unit |
ETF unit prices are quoted with bid and ask spreads, similar to regular stocks on the stock exchange. Hence, ETF unit prices may vary according to market demand for the units and may differ from the market value of the underlying assets. |
Unit trusts are quoted based on NAV, thus prices often closely reflect the market value of the underlying assets. |
Benefits |
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Drawbacks |
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*Risks listed are the common risks only and thus are not exhaustive.
Which investment product, ETF or unit trust, is more suitable for me?
As previously pointed out in the previous section on ETFs & Unit Trusts, when it comes to performance, there is no definitive answer as to which investment product is better. Sometimes, unit trusts outperform ETFs, whereas in some other cases, ETFs outperform unit trusts as markets are dynamic and unpredictable, thus not all the time fund managers manage to outperform the related indices! Conclusively, the suitability of either product to an investor depends on his unique needs and preferences which dictate his risk-return profile, and perhaps a combination of both would bring the best of both worlds!
