ETFs for be­gin­ners

Finweek English Edition - - Cover Story Exchange-traded Funds -

What are they?

ETFs are a col­lec­tion of as­sets traded as a sin­gle unit on the stock mar­ket.

Th­ese can be an in­dex, com­modi­ties or bond or money-mar­ket in­vest­ments, and you es­sen­tially own a small piece of th­ese with­out ac­tu­ally own­ing any of the un­der­ly­ing shares. They al­low you to have a port­fo­lio of shares with­out buy­ing each share.

ETFs are not meant to beat the mar­ket, they sim­ply track it.


Fees are gen­er­ally much lower than that paid for ac­tive man­agers. Most ETFs at­tract fees that are a third to a fifth of the fees as­set man­agers charge for unit trusts. Given the size of the in­dus­try, fees are very com­pet­i­tive, says et­fSA's Mike Brown, adding it is dif­fi­cult to get fees any lower due to fees charged by the JSE and in­dex track­ers.

Ac­cord­ing to the et­fSA web­site, in­vestors us­ing the et­fSA In­vestor Plan plat­form to trans­act in ETFs pay a com­pos­ite an­nual fee that cov­ers the ad­min­is­tra­tion of their ac­counts, in­clud­ing: regis­tra­tion and cus­to­di­an­ship of ETF se­cu­ri­ties; rein­vest­ment of div­i­dends; client re­port­ing; is­sue of tax cer­tifi­cates; us­age of the et­fSA trans­ac­tion plat­form; and com­pli­ance. The fees are 0.65% for a to­tal in­vest­ment per fund of up to R500 000, 0.5% be­tween R500 000 and R1m, and 0.35% for R1m or more.

You pay stock­bro­ker­age fees of 0.08% for buy­ing and sell­ing.

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