AlphaWolf

Good day everyone,

I have just read up abt investing in index funds from the motly fools book on investments. Not familiar at all with paper investments so hope that some experienced investors can help shed some light on this topic.

What is the main difference between index funds and ETFs? If an ETF's aim is to replicate an index instead of in govt bonds, isn't it the same as an index fund?

The following question abit weird ar... Does Singapore have index funds? Cause the whole SGX web can find alot of ETF but not index fund, leading me to initially think that ETF is another term for index fund, just like how unit trust and mutual funds are the same.

Many thanks for the help!
Ken

Narutard

Heres the difference:

ETF:
1. ETFs are flexible investment vehicles, they appeal to a broad segment of the investing public. Passive investors and active traders alike find the features of ETFs attractive.

2. Passive institutional investors love ETFs for their flexibility. Many see them as a great alternative to futures. For example, ETFs can be purchased in smaller sizes. They also don't require special documentation, special accounts, rollover costs or margin. Furthermore, some ETFs cover benchmarks where there are no futures contracts.

4. Active traders, including hedge funds, love ETFs for their convenience, because they can be traded as easily as stocks. This means they have margin and trading flexibility that is unmatched by index funds. Ironically, ETFs are exempt from the short sale uptick rule that plagues regular stocks (the short sale uptick rule prevents short sellers from shorting a stock unless the last trade resulted in a price increase).

Index Funds:
Passive retail investors, for their part, will love index funds for their simplicity. Investors do not need a brokerage account or deposit with index funds. They can usually be purchased through the investor's bank. This keeps things simple for investors - a consideration that the investment advisory community continues to overlook.

Conclusion
As with many financial decisions, determining which investment vehicle to commit to comes down to "dollars and cents". Given the comparison of costs, the average passive retail investor will decide to go with index funds. For these investors, keeping it simple can be the best policy. Passive institutional investors and active traders, on the other hand, will likely be swayed by qualitative factors in making their decision. Be sure you know where you stand before you commit.

You can read more here: http://www.investopedia.com/articles...FIndexFund.asp


And for the Singapore index funds... i don't live in Singapore so i have no idea about it.

AlphaWolf

Thanks Tic Tat. This clarifies some bits. Am I right to say that Index funds instead of the flexibility of being traded as stock, have to be purchased through financial institutes such as banks?

Am I right to say that since buying index funds does not consists of any application or brokerage fees, it would be much more suitable for a person who invests a fixed amount of money every month? (cost dollar averaging) With discount brokers common everynow with abt $7 - $20 brokerage fees, does that actually affects the returns much? 20 years down the road it will chalk up to abt $3K.