You will be able to compare ETFs on the same index using cost, size and where they are listed.
Once Nadia had settled on a world index, she expected the hard part to be over. Then she found several ETFs following world indexes, some on SGX and some overseas, from different issuers with different fees and sizes, all holding much the same companies. How was she supposed to pick?
When funds follow the same kind of index, three checks do most of the sorting: yearly cost, fund size and listing. You can make all three without predicting anything, and all three are on the factsheet you learned to read in lesson 4.4, Read one ETF factsheet and find six facts.
Every fund takes its running costs out of its assets each year, shown as the expense ratio or ongoing charges. You never see a bill, so it's easy to treat a fraction of a percent as nothing. Over decades it adds up to real money, because the fee comes out of a growing balance every year, and the money it takes stops compounding for you.
Here's a made-up example using Nadia's plan: S$5,000 to start and S$500 a month for 20 years, in a fund whose holdings earn 5% a year before costs. The 5% is invented for the example and predicts nothing. If the fund charges 0.2% a year, she ends with about S$211,000; at 0.6% a year on the same holdings, about S$202,000. That's a gap of roughly S$9,400 on the S$125,000 she paid in, and the fee is the only thing that differs.
So when two funds hold much the same thing, the cheaper one starts with an edge that's hard to overcome. The expense ratio isn't the whole cost of a fund, though. Trading costs inside the fund and taxes on dividends also eat into the return, which is why Build and run an ETF portfolio teaches you to compare what funds actually delivered, in lesson 3.1, Expense ratio and the costs it leaves out. For a first fund, it's enough to compare expense ratios between similar funds.
Fund size, the total value of the fund's assets, matters for two reasons. One is closure: as lesson 4.3, What can go wrong with an ETF, explained, issuers sometimes shut funds that don't attract enough money. When that happens, you get cash back and have to start again. Large funds are less likely to close, because they earn their issuer enough to be worth running.
The other is trading cost. Larger funds usually trade more often, and busier funds tend to have narrower bid-ask spreads, which you learned to measure in lesson 4.2, How an ETF price is set on the exchange. A fund that's a fraction of the size of its rivals may cost you more every time you buy, even if its expense ratio looks low.
There's no single size that counts as safe. Compare funds against each other. If one has many times the assets of another on a similar index, that's a point in its favour. If a fund is very small and has been around for years without growing, be wary.
The same index can be tracked by a fund listed on SGX or by one listed overseas, such as in the US or London. That choice changes more than the trading hours.
An SGX-listed fund trades during Singapore market hours, and many have an SGD counter, so you can buy without converting currency. If you chose a CDP-linked broker in lesson 1.4, an SGX fund can sit in your own CDP account. That's the simplest path for a first fund.
An overseas listing brings a set of extra questions. You'll need a broker that offers that market, and your units will usually be held in custody. You'll convert currency, which has its own costs. And depending on where the fund is domiciled, some of its dividends may be lost to withholding tax, and US-listed funds can create a US estate tax issue for your family. None of that rules an overseas fund out, but each point needs working through before you buy.
This course doesn't go into those questions. Build and run an ETF portfolio covers withholding tax and domicile in lesson 3.3, Domicile and withholding tax on dividends, and Investing in US and global markets from Singapore covers the rest, starting with lesson 3.1, Why 30% of a US dividend never reaches you, and lesson 4.1, The US can tax your US shares when you die. Note that an SGX listing doesn't mean the fund is domiciled in Singapore. Check the domicile line on the factsheet either way.
The three checks often agree. Large funds tend to be cheaper, because issuers can spread their costs, and they tend to trade with tighter spreads. When they don't agree, weigh them against your must-have list from lesson 5.1, Start from the goal, not from the fund. If your list says SGX-listed in SGD, an overseas fund drops out however cheap it is.
Nadia's list did say SGX and SGD, so her search was short. Using the index type you chose in lesson 5.2, find three ETFs that fit it and record each one's yearly cost, fund size and listing.
Find three ETFs that fit your chosen index type and note the cost, size and listing of each.
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