When it comes to invest in SGX market, investment in stock ETF is beneficial. ETFs are traded on a stock exchange and units of ETFs can be bought & sold throughout the trading. There are various profitable ways to invest in ETF such as bonds, portfolio rebalancing & asset allocation. Here in this blog, we are discussing about how ETF’s are structured.
But, before this you must know that “Are stock ETF’s are suitable for everyone”? Yes, investing in ETF might not be beneficial for every traders & investors. Here are some reasons why it’s not suitable for every individual.
- If expecting higher returns in stock exchange but mentally not prepared for variable returns which may tend to lose substantial part of your original investment.
- If you don’t have idea about how returns are analyzed or if you are not sure about how investment factors affect your returns.
- Being investors, you must be aware of the risks factors related with the use of derivatives by ETFs while trading in stock market.
- Unable able to leave your money that is invested for long term. A longer time horizon is generally preferred to ride out short term price fluctuations.
ETF’s are structured in following ways:
Cash Based ETF’s:
These are the ETFs that can be directly invested into the assets to structure the index. Cash based ETF’s can be invested in bonds, component stocks or assets. It’s recommended to have Stock Recommendations before investing in ETF’s.
Synthetic ETFs are comprised of derivative products like as swaps or access products. For instance, “Participatory notes” to generate good returns that also finds the relevant indices.
Swap Based Products (Unfunded Structure):
In swap base products, the ETF’s are bought & hold as financial securities. These financial securities might not relate to the index which the ETF is tracking. The ETF further undertake the swap agreement with different entity, which is termed as swap counterparty.
Swap Based (Funded Structure):
In this, the ETF enter its cash holdings to swap counterparty. In exchange, the swap counterparty has to pay the amount of index which the ETF is tracks.
ETF varies in terms of your objectives of stock investment, strategies involved in it & several risks factors. Therefore, investing in stock ETF, you must have alternatives for investing in different products with accurate Stock Picks and also it’s necessary to understand the risk factors involved.