The ins and outs of exchange traded funds (ETFs)

Julie Brownlee, Fsp Invest, 08 Oct. 2015

Tags: etfs, exchange traded funds, what are etfs, how to invest in etfs, types of etfs, unit trusts,



If you’re looking for a simpler way to invest, have you considered investing into exchange traded funds (ETFs)?

By buying into ETFs, you remove the need to pick individual stocks, but you can still benefit from the performance of the stock market.

So what exactly are ETFs? And how can you invest in them?

Read on to find out…



What are ETFs?


ETFs are passive investment funds. They aim to track the performance of an index or other asset by investing directly in a basket of shares or assets.

For example, take an ETF on the JSE Top 40 Index.

This ETF will hold shares that make up the Top 40 Index in the same weighting as the index. The ETF should mirror the performance of the index.

In South Africa, there are a whole host of different ETFs available to invest in. You can invest in:

  • The largest companies in South Africa;
  • Property stocks;
  • Resource stocks;
  • Financial stocks;
  • Industrial stocks;
  • Government bonds;
  • Gold;
  • Platinum; and
  • Offshore indexes.

ETFs are very similar to passively managed unit trusts, but ETFs are listed on the stock market.


How can you invest in ETFs?


If you want to invest in ETFs you have a few options…

You can buy them through your stock broker. You need to have an account with a stock broker to do this.

You can buy them through a company dedicated to ETFs, such as etfsa.co.za.

Or you can buy them through the provider of the ETF, for example Satrix or RMB.

There are costs associated which each option. Weigh up which is the best option for you.

So there you have it. The ins and outs of exchange traded funds (ETFs).

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