ETF Investing in Malaysia: The Easy Way to Invest Like Unit Trusts
Most Malaysians are familiar with Unit Trusts, but did you know that you can invest in a similar way using just your CDS Account?
Want to know how?
Read this article to find out. In this article, we will explain everything about Exchange Traded Funds (ETFs).
What Is an ETF?
ETF stands for Exchange Traded Fund, and it is one of the investment instruments available on Bursa Malaysia.
In simple terms, an ETF is essentially a 'Unit Trust' that is traded through the Bursa Malaysia stock trading platform.
It is an open-ended investment fund traded on the stock exchange that combines the features of index funds and individual stocks.
Difference Between ETF and Unit Trust
They may look similar, but they are actually quite different.
Nearly all Unit Trusts employ an active management strategy. This means fund managers frequently buy and sell stocks within their portfolio.
When trading occurs frequently, the transaction costs tend to be higher.
Compared to Unit Trusts, the cost of managing an ETF is much lower. This is because ETFs follow a passive management approach.
Generally, there are three types of ETFs available:
- Equity ETFs
- Fixed Income ETFs
- Commodity ETFs
ETFs consist of a group of stocks, bonds, or commodities based on a specific index, which instantly offers diversification.
This also helps reduce the risk associated with selecting individual company stocks.
Advantages of Investing in ETFs
1. Diversification
We always hear Warren Buffett say Don't put all your eggs in one basket, meaning we need to diversify our investments.
With ETFs, you gain exposure to a basket of securities such as stocks, bonds, or commodities in a single transaction.
2. Low Cost
The management fees for ETFs are much lower compared to unit trusts. ETFs offer great value for money to buy and hold as a long-term investment.
3. Easy to Trade
ETFs are listed on the Main Market of Bursa Malaysia.
Just like stocks, ETF buy and sell transactions are executed based on the current market price. Everything is done online.
Returns From ETFs
There are two ways to earn returns, just like stocks — through Capital Gains and Dividends.
1. Capital Gain
Investors can trade ETFs like stocks by buying at a low price and selling at a higher price to earn a profit.
2. Dividends
Fund managers typically receive dividends from the securities within the ETF portfolio. They then distribute these dividends to ETF unit holders after deducting management fees.
Are ETFs Shariah Compliant?
There are 7 Shariah-compliant ETFs available:
- MyETF Dow Jones U.S. Titans 50 (Code: 0827EA)
- DJ Islamic Malaysia Titans 25 (Code: 0821EA)
- MSCI Malaysia Islamic Dividend (Code: 0824EA)
- MSCI South East Asia Islamic Dividend (Code: 0825EA)
- VP-DJ Shariah China A-Shares 100 ETF
- TradePlus Shariah Gold Tracker (Code: 0820EA)
FAQ – ETF Investing in Malaysia
What is the difference between an ETF and a Unit Trust?
An ETF (Exchange Traded Fund) can be bought and sold on Bursa Malaysia just like regular stocks using a CDS account, whereas Unit Trusts are purchased through agents or specialised platforms. ETFs typically have lower management fees compared to Unit Trusts.
Are there Shariah-compliant ETFs in Malaysia?
Yes, there are 7 Shariah-compliant ETFs on Bursa Malaysia, including MyETF Dow Jones U.S. Titans 50, DJ Islamic Malaysia Titans 25, MSCI Malaysia Islamic Dividend, and TradePlus Shariah Gold Tracker.
What is the minimum cost to start investing in ETFs?
To start investing in ETFs, you need to open a CDS account which costs RM11. After that, you can purchase ETFs at the current market price, which is usually lower than the minimum investment required for Unit Trusts.
How do ETFs generate returns for investors?
ETFs generate returns in two ways: capital gains when the ETF price increases, and dividends distributed by fund managers from the securities within the ETF portfolio.
Conclusion
To start investing in ETFs, you must first have a CDS account. The cost to open a CDS account is only RM11.
Don't have a CDS account yet? You can open a CDS account now easily online.
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