If you’re a young Malaysian or new to investing, you’ve probably heard people mention ETFs (Exchange Traded Funds) and may be wondering what it is. Think of ETFs as a shortcut to building a diversified portfolio, they let you gain exposure to a mix of stocks, commodities, or entire markets in just single investment.
Essentially, ETFs track specific indexes or asset bundles, giving you easy access to sectors or industries you might not normally have the means to invest in individually.
Here’s an overview of what ETFs offer and why they can be a valuable investment for both beginner and experienced investors.
What Are ETFs?
ETFs, or Exchange Traded Funds, are investment funds that track indexes, commodities, or a mix of assets and can be traded on stock exchanges throughout the day, just like stocks. They provide investors with an easy way to diversify their portfolio, offering exposure to various markets in a single, low-fee investment.
While ETFs are listed on stock exchanges, like the Bursa Malaysia, they can come in different forms, including equity ETFs that track stock market indexes, commodity ETFs that track assets like gold or oil, fixed-income ETFs that focus on bonds, and currency ETFs that monitor exchange rates.
This variety makes ETFs a flexible and accessible choice for investors who want to build a diversified and cost-effective portfolio.
There are 16 ETFs that investors can buy on the Bursa Malaysia.
Today, investors can also invest in ETFs that are listed in global exchanges via their stock brokerages. For example, IBKR can give investors easy access to a range of global stock markets – each offering their own set of ETFs.
Read Also: Malaysian Investors’ Guide To Opening An Account With Interactive Brokers (IBKR)
Why You Should Consider Investing in ETFs
There are several reasons why both experienced and beginner investors should consider investing in ETFs:
#1 Diversification
Investing in ETFs on Bursa Malaysia offers a simple, diversified way to access the Malaysian market. These ETFs typically include a range of top companies across various sectors, providing investors with broad market exposure and reducing the risk associated with picking individual stocks.
Not only that, there are also ETFs that give investors broad exposure to global markets in a single investment. For example, there are ETFs that give investors exposure to US, China, ASEAN, Asia ex-Japan REITs, and gold on the Bursa Malaysia.
With a single investment, investors can tap into a diversified portfolio that balances potential risks across industries, from finance and technology to consumer goods and utilities.
With global access via our brokerage today, we’re not constrained to just investing on the Bursa Malaysia too. For example, brokerages such as IBKR can investors access to ETFs listed in global stock markets.
#2 Lower Costs and Convenience
Cost-effectiveness and flexibility are other key reasons to consider ETFs on Bursa Malaysia. ETFs are managed passively, and generally have lower fees compared to actively managed mutual funds, making them a more affordable option for investors.
Plus, they trade just like stocks, allowing investors to buy and sell shares throughout the trading day at current market prices. This flexibility can help investors quickly adjust to market changes or liquidity needs without the limitations associated with traditional mutual funds.
Moreover, it can be both complicated and more costly for investors to put together such a diversified portfolio on their own. As ETFs track specific indexes, its constituents can also change over time. Individuals may not have the expertise or time to monitor their investments.
#3 Dividend Income Potential
ETFs also offer the potential for dividend income and exposure to Malaysia’s economic growth. Many of the large companies within these ETFs pay consistent dividends, creating opportunities for passive income. As Malaysia’s economy strengthens, the performance of these companies may be reflected in ETF returns, offering potential for both capital appreciation and a hedge against inflation. Investing in ETFs on Bursa Malaysia is an accessible, versatile, and cost-efficient way to gain exposure to the nation’s economic landscape.
Of course, investors may also prefer to prioritise other stock market indexes or even ETFs listed in other global exchanges. These may or may not offer dividend income potential, and investors need to understand what they’re investing in.
How To Invest in ETFs?
It’s a relatively straightforward process to start gaining exposure to ETFs listed in Malaysia and other global exchanges.
#1 Set Up a Central Depository System (CDS) Account and Trading Account
A Central Depository System (CDS) account holds your securities (such as ETFs) in electronic form. In addition, you will need a trading account, which allows you to buy and sell ETFs on the stock exchange. Both accounts can be set up through a licensed stockbroker. You can open these accounts either online or by visiting your broker’s office.
In some instances, you may not need to open a CDS, if your brokerage is holding your investments as a custodian.
#2 Find a Stockbroker
In Malaysia, you must work with a licensed stockbroker to facilitate ETF trades. You can choose from a wide range of brokers who offer services for buying and selling ETFs. Many brokers provide various platforms, including online trading platforms like Interactive Brokers (IBKR) and moomoo, which make it easier to invest in ETFs.
You can compare the fees, trading platforms, and available ETFs before selecting the right broker for your needs.
You’ll need to fill out some forms and provide necessary documents, such as proof of identity and residence. In many cases, you can open your trading account entirely online, which streamlines the process. Once your account is set up, you’ll gain access to your broker’s platform where you can start buying and selling ETFs.
#3 Select Your ETF Investment
Upon activation of your trading account, it’s time to decide which ETF to invest in. ETFs come in many types, such as equity ETFs (which track stock market indices), commodity ETFs (which track the performance of commodities like gold or oil), fixed-income ETFs (which track bonds), and currency ETFs (which track currency exchange rates).
It’s essential to research the available ETFs, consider your investment goals, and assess the risk level of the ETF before making a decision.
Do note that some ETFs are riskier than others, especially those that employ leverage and offer inverse positions. You should understand what you’re investing in and the potential risks involved.
#4 Place Your Trade
After selecting your ETF, you can place your order through your broker’s trading platform. On the platform, you’ll enter the number of units you want to buy and confirm the transaction. Keep in mind that ETFs are bought and sold like stocks, so the price of the ETF can fluctuate throughout the day. Make sure you are comfortable with the price at the time of purchase before confirming the order.
#5 Monitor Your Investment
Once you’ve invested in an ETF, it’s essential to monitor your investment regularly. Track the performance of your ETF to see how it aligns with your investment goals. You can access real-time data through your trading platform, and many brokers offer tools to help you analyse your portfolio. Keeping an eye on market conditions and the sectors your ETFs are invested in will help you make informed decisions about your investments.
In summary, ETFs offer a straightforward, flexible way to dive into investing on Bursa Malaysia. Whether you’re aiming for diversification, lower costs, or potential income through dividends, ETFs pack a range of benefits into a single, accessible investment. With Malaysia’s economic growth on the rise, ETFs provide a solid foundation to grow your wealth over time while navigating the stock market with greater diversification. So, whether you’re just starting out or looking to expand your portfolio, ETFs could be the investment path you’ve been waiting for!
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