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Myths and Facts of ETFs
Myth 1: ETFs do not yield dividends
Fact: There are SGX-listed ETFs that pay dividends to investors. ETF fund managers determine if dividends arising are better utilised re-invested or distributed as income to investors.
Fact: ETF fund managers aim to track the underlying index as closely as possible and not to beat it. As such, the management fees are much lower than the 1-2% charged by mutual funds/unit trusts.
Reason 1: Index ETFs maintain relevant exposure in the country or market
A country's key index, like the Straits Times Index (STI) for Singapore and Dow Jones for US, aims to reflect the economic composition and market structure of the economy. Over time, index providers adjust the indices to maintain this relevance. Existing ETF holders get to enjoy this adjustment without additional effort or cost. Index ETF holders will always be appropriately diversified.
Reason 2: Quality of index stocks is continually reviewed by index providers
Component stocks are regularly reviewed for suitability by the index provider. Only stocks that influence market movements and are actively traded will remain in the index.
Reason 3: ETFs incur low fees and charges
Unlike mutual funds/unit trusts, investors only pay brokerage commissions and Exchange charges during the sale and purchase of ETFs. In addition to the low management fees, there are no performance fees.
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