Here are some of the advantages of investing in ETFs
Yes, you can use your CPF monies to purchase selected SGX-listed ETFs. You can settle your trade with your CPF monies when you have a CPF investment account opened with an agent bank and this account is linked to your DBS Vickers trading account.
However, you can only invest monies in excess of $20,000 and $40,000 in your Ordinary Account and Special Account, respectively. For SPDR Gold Shares, only 10% of excess investible savings in your Ordinary Account can be used.
There are currently four SGX-listed ETFs you can buy using CPF:
Fixed Income ETFs allow a customer to invest in bond portfolios at a scale and cost enjoyed by an institutional investor. The majority of bonds trade on an Over-the-Counter (OTC) basis. Hence, retail investors incur very wide bid-offer spreads when trading in small quantities of individual bonds.
The advent of fixed-income ETFs has allowed retail investors to access a huge range of fixed income portfolios, most of which are passively managed, thus generally much lower in costs than the Fixed Income Mutual Funds.
Bond ETFs pay dividends to shareholders along the life of maturity. When buying Fixed Income ETFs, you should be aware of the withholding taxes of certain jurisdictions.
ETFs are generally classified as Specified Investment Products (SIPs) and Monetary Authority of Singapore (MAS) had implemented measures since 1 January 2012 to safeguard the investors in Singapore. Due to the recent broadening in definition by MAS, do expect to see more ETFs re-classified as EIPs.
ProShares introduced the first leveraged and inverse ETF in the U.S. in 2006. These ETFs are used by investors for short-term strategies to take bearish or bullish views or to manage risk.
With these ETFs, investors could be assured they would not lose more than what they have invested and could access leveraged or short exposure without the need to open a margin account or have direct positions in derivatives.
Inverse ETFs perform as the inverse of the benchmark it is designed to track. Leveraged ETFs, which are also known as Geared ETFs, seek returns e.g. 3x, 2x, -1x, -2x or -3x of the return of an index or other benchmark for a single day.
These products come with more volatility and should only be used by experienced traders.
Exchange Traded Notes (ETNs) are actually debt securities i.e. a structured note that promises to pay out returns based on a specific index.
ETNs can be structured as unsubordinated or unsecured debt.
ETNs may carry a higher risk as compared to Exchange Traded Funds since they do not hold an underlying basket of securities, contracts or futures. Instead, the issuer of the ETN aims to match the performance of a specified index. If an issuer defaults, investors holding ETNs can lose their entire investment.
It is also important that an investor is aware that the issuer of an ETN may suspend creations and redemptions when it decides it does not want to add to the debt on its balance sheet related to the index, on which the ETN is based. An example of an ETN is iPath S&P 500 VIX (VXX US Equity), which tracks the VIX futures.