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 ETF:
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.
Source: {www.mmfsolutions.sg/blog/how-etfs-are-important-in-stock-investment/}
