For beginner investors, deciding between Unit Trusts and Exchange Traded Funds (ETFs) can be confusing. Both provide diversification, but they differ in management style, fees and flexibility. Knowing these differences will help you determine which is the right fit for you.
ETFs (Exchange-Traded Funds)
Lower Fees
Since ETFs are passively managed, they generally have lower fees compared to unit trusts.
More Flexibility
ETFs are traded on the stock exchange, so investors can buy and sell shares throughout the trading day, much like individual stocks.
Buying Into Market Performance
ETFs closely track the performance of major indices like the S&P 500 and MSCI World, offering investors returns that mirror the broader market.
Unit Trust Funds
Professionally and Actively Managed
Unit trusts are actively managed by a professional fund manager who selects the investments on behalf of investors. These investments are typically backed by research.
Affordable
Due to active management, unit trusts usually have higher fees which include management fees and other costs. However, compared to other actively managed investments such as hedge funds, these fees are still affordable and relatively low for professionally managed funds.
Informative Updates and Outlooks from Professionals
Unit trusts offer regular updates and market outlooks from the fund managers. These insights help investors stay informed about trends and align their portfolios with current market conditions.
Invest in SGD and Access to Different Share Classes / Hedging Options
Where most ETFs sit on foreign stock exchanges, and are denominated in a foreign currency (typically in USD), unit trusts almost always allow investors to invest with Singapore Dollars (SGD). Investing in unit trusts denominated in SGD offers access to various share classes tailored to different needs and fee structures. Additionally, many unit trusts provide hedging options to protect against currency fluctuations, making them a flexible choice for managing risk while investing in SGD. ETFs on the other hand, do not offer currency hedged options.
Customizable Investment Strategies
While some unit trusts focus on beating a particular benchmark or index, some can be tailored to achieve different outcomes such as income generation. For example, some unit trusts are designed to aim for a specific percentage of income (eg. 6% p.a. paid monthly). This approach provides investors with flexibility to align their portfolios with their income goals.
Which Option is Best for New Investors?
Unit Trusts: A Hands-Off, Professionally Managed Approach
If you are a new investor who prefers a more hands-off approach and willing to pay for professional oversight, unit trusts might be better for you. Unit trusts are actively managed by professional fund managers who make investment decisions on behalf of the investor. They conduct research, analyze market trends and adjust the portfolio to capitalize on opportunities and minimize risks. This professional oversight can be reassuring for new investors, especially those unfamiliar with market dynamics, as understanding how market forces influence investment performance can be daunting for beginners.
However, this “reassurance” comes at a cost—unit trusts typically have higher fees, including management fees and other associated costs. These fees pay for the expertise of the fund managers and the resources required to actively manage the unit trust fund. Despite the higher costs, the reduced need for day-to-day involvement coupled with the potential of a curated investment strategy make unit trusts attractive for beginners who want to leave the heavy lifting to professionals.
ETFs: A Low-Cost, Flexible Option with More Control
If you are a new investor who prefers lower fees, liquidity and don’t mind taking a slightly more active role in your investments, ETFs are a good choice.
ETFs are passively managed as they track the performance of a specific index such as the S&P 500 or MSCI World. Since there’s no active management involved, ETFs generally have lower fees than unit trusts, making them a cost-effective way to diversify your portfolio.
Additionally, ETFs offer greater liquidity. They can be bought and sold throughout the trading day, just like individual stocks, allowing you to manage your investments more dynamically. This can be particularly attractive to beginners who want more control over their investment decisions.
However, this also means you’ll need to be more hands-on when it comes to your investments and investment strategy—choosing which ETFs to invest in, monitoring performance and deciding when to buy or sell. While ETFs don’t require extensive expertise, they do need a bit more investor involvement than unit trusts, making them suitable for beginners who are comfortable with a more hands-on approach.
Choosing the Right Option for You
Ultimately, the decision between unit trusts and ETFs depends on your investment style, preferences and financial goals. If you are seeking a simpler “hands-off’ approach and willing to pay for professional management, unit trusts may offer the confidence and guidance you need as a beginner, particularly if your financial goals include long-term growth or capital preservation.
However, if you’re more cost-conscious and prefer to have more direct control over your investments, ETFs provide a low-cost, flexible alternative that still offers diversification. This makes them suitable for those who have financial goals that may involve active trading strategies and aggressive growth.
Both options can be valuable components of a beginner’s portfolio, and in some cases, investors may choose to incorporate both unit trusts and ETFs to balance professional management with cost-efficiency and liquidity.
Should you prefer both and would like diversification exposure into ETFs and unit trusts, you can do so through Standard Chartered Singapore’s SC Invest portfolios.
SC Invest portfolios take advantage of the unique distinct strengths of both ETFs and Unit Trusts, and feature a combination of them in globally diversified multi-asset portfolios of unit trust funds and ETFs, with investor access to Standard Chartered’s CIO views.
Should you prefer both and would like diversification exposure into ETFs and unit trusts, you can do so through Standard Chartered Singapore’s SC Invest portfolios.
SC Invest portfolios take advantage of the unique distinct strengths of both ETFs and Unit Trusts, and feature a combination of them in globally diversified multi-asset portfolios of unit trust funds and ETFs, with investor access to Standard Chartered’s CIO views.
For example, as at September 2024, the SC Invest Balanced portfolio has an allocation of 84.2% in ETFs and 15.8% in Unit Trusts, while the SC Invest Income portfolio has an allocation of 56.0% in ETFs and 44.0% in Unit Trusts.
How to Sign Up
If you’re an existing customer ready to start investing in a diversified portfolio with proven track record, follow these 3 simple steps today:
Step 1: Log-in to your SC Mobile app
Step 2: Navigate to the ‘Invest’ tab, and tap on ‘SC Invest’
Step 3: Pick a portfolio that suits your investment needs
