ETFs (Exchange Traded Funds) are securities that track indices, commodities or baskets of assets. They are traded on stock exchanges and can be bought and sold like stocks.
In Singapore, the settlement timeframe for most ETFs is T+3 (trade date plus three), and this means that the buyer of an ETF will receive the underlying securities in their account three days after the order is placed.
This article will look at what this means for traders and why it is essential to factor in when making investment decisions. We’ll go through some of the advantages of using ETFs in Singapore.
What is the relevance of ETF settling time?
An ETF is an investment that holds assets such as stocks, bonds, or commodities. To trade an ETF, you need to buy the shares and then wait for them to settle before you can begin earning any returns.
The length of time it takes for an ETF to settle in Singapore can be very relevant when deciding which ETF to invest in. Different asset classes can have varying settlement times; stocks typically settle much faster than bonds or commodities. Therefore, it’s crucial to understand how long these types of investments take to settle to choose the best ETF for your investment goals.
One of the strategies that many investors use when deciding which ETFs to invest in is to look at the Total Expense Ratio (TER). An ETF with a low TER will generally outperform an ETF with a high TER over time, assuming all other factors are equal. However, if you also consider how fast an ETF settles, you can further improve your chances of success by choosing an investment with both a low TER and a fast settlement time.
What are the key benefits of using ETFs in Singapore?
Let’s look at some of the benefits ETFs offer in Singapore.
Low expense ratios
ETFs often have meagre fees than other investment vehicles, such as mutual funds and individual stocks. They may be appealing to investors who want to keep their expenditures low while still achieving long-term gains.
Diversification
Because ETFs comprise many different assets and securities, they can offer great diversification benefits to investors. You can quickly obtain exposure to hundreds or even thousands of underlying firms and other assets by investing in a single ETF.
Liquidity
Another key benefit of using ETFs is that they tend to be very liquid investments. ETFs have large trading volumes because of their popularity among retail and institutional investors, making buying and selling simple. It is constructive for investors who want quick access to their money when the markets undergo periods of volatility or uncertainty.
Transparency
When you invest in an ETF, you can quickly determine what securities make up each fund, how much they cost, and how they’ve performed over time. This level of transparency gives you an inside look at exactly what you’re getting with your investment and helps you feel more confident about making decisions on your portfolio.
Portfolio diversity
You can further decrease your portfolio risk by investing in a broad range of asset classes through a single ETF. This is because different asset classes often move in different directions, so if one asset class is performing poorly, there’s a good chance that another will be doing well.
Access to hard-to-reach markets
Some ETFs offer access to investments and market segments that would otherwise be difficult or impossible for retail investors to access on their own. Some ETFs focus on specific countries or regions, sectors, and investments like commodities or real estate.
Tax efficiency
One final benefit of using ETFs is that they offer greater tax efficiency than other investment vehicles such as mutual funds. This is because ETFs generally have a meagre turnover ratio, meaning that they tend to make fewer transactions than other types of investments. It minimizes the amount you have to pay in taxes on your investment returns, ultimately helping you keep more of your money over the long term.
Ease of use
Finally, another benefit of using ETFs is that they’re usually easy for investors to buy and sell. No matter your trading expertise, having access to an investment vehicle can offer peace of mind as you work toward developing and maintaining your portfolio over time.
To summarise
The time it takes to settle ETFs in Singapore can vary, depending on the specific ETF and the broker. Generally, however, you should complete the process within three business days. There are many advantages to using ETFs in Singapore for those seeking an investment opportunity. If you have any questions or concerns about your investments, you should always contact your broker directly.