A fund that mechanically tracks a market index (e.g. S&P 500, MSCI World). No active manager picking stocks — fees are a fraction of a percent.
An index fund mechanically tracks a market index — like the S&P 500, MSCI World, or Singapore's Straits Times Index — by holding all (or a representative sample) of the index's constituents in proportion.
Unlike actively-managed funds, there's no stock-picking and no human judgment about market timing. The fund's only job is to match the index, minus a small management fee.
Cost: expense ratios of 0.03% – 0.20% versus 1% – 2% for actively managed funds. Over 30 years, the fee differential typically eats 25% – 40% of an active fund's gross returns.
Diversification: a single S&P 500 fund gives exposure to 500 of the world's largest companies. MSCI World gives 1,500+ across 23 developed countries.
Performance: SPIVA studies consistently show 70% – 90% of active funds underperform their benchmark index over 10 – 20 year horizons, especially after fees.
Both passively track an index. The main differences are pricing mechanism and trading.
Index fund: priced once daily at NAV, bought and sold via the fund provider. Common structure in retirement schemes and direct mutual-fund platforms.
ETF: trades intra-day on a stock exchange. Easier to buy via any brokerage account, and the in-kind creation/redemption mechanism makes ETFs slightly more tax-efficient (less relevant in Singapore where individuals pay no capital gains tax).
Singapore retail investors typically use ETFs for simplicity, accessing index strategies through SGX or via Irish-domiciled funds in London (IWDA, VWRA, CSPX).
Identify the index: broad-market (S&P 500, FTSE Global All Cap), developed-only (MSCI World), or all-world (FTSE Global / MSCI ACWI).
Check expense ratio: under 0.20% is fine; under 0.10% is excellent.
Check fund domicile for tax: Irish-domiciled funds suffer 15% US dividend withholding tax; US-domiciled suffer 30%. For long-term holders this matters more than the headline expense ratio.
Check liquidity / fund size: stick to ETFs with over US$1 billion in AUM and daily volume above 100,000 shares.
A fund that mechanically tracks a market index — like the S&P 500, MSCI World, or Singapore's Straits Times Index — by holding the constituents in proportion to the index. No active stock picking, no market timing. Just match the index minus a small management fee.
Most ETFs are index funds, but index funds existed in mutual-fund form first (Vanguard's 1976 launch). The difference is pricing: index funds price once daily at NAV; ETFs trade intra-day on exchanges. Most Singapore retail investors use the ETF form.
Cost. Index funds charge 0.03% – 0.20% in fees; active funds charge 1% – 2%. Over 30 years, the fee differential compounds to lose active funds 25% – 40% of gross returns. The SPIVA scorecards consistently show 70% – 90% of active funds underperforming their benchmarks long-term.
For broad equity exposure, Irish-domiciled VWRA (global all-cap) or CSPX (S&P 500) are popular choices — low TER (~0.07% – 0.22%), tax-efficient via Irish domicile. For SGD exposure, the STI ETF works but is concentrated in 3 banks. Most balanced portfolios combine global ETFs with SGD bond funds.