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FAQs on Real Estate Investment Trusts (REITs)

FAQs on Exchange Traded Bonds and Sukuk (ETBS)

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Treatment of Shariah Non-Compliant Securities

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Labuan International Financial Exchange (LFX)

Islamic Securities Selling & Buying – Negotiated Transaction (ISSBNT)

Electronic CDS Statements and Notices (eStatement)

Consolidation of Depositors Email Addresses in CDS

Association of Global Custodians (AGC) Questionnaire

Network Access and Infrastructure Services (NAIS)

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Market HomeSecuritiesEducation FAQs on Exchange Traded Funds (ETFs)

Learn how to invest in the securities market. Whether you are a beginner or an expert, you can find useful information, tips and ideas on investing in this section.

Exchange Traded Funds or ETFs, are open-end index tracking funds or trusts that are listed and traded real time on a stock exchange. An ETF is a security that tracks an index, a commodity or a basket of assets like an open-end investment fund, but trades on an exchange like a stock. Since ETFs are bought and sold on an exchange like shares, ETFs are priced and traded throughout the day. Essentially, ETFs combine the characteristics of an open-end fund and a stock.

An index is made up of a basket of securities (e.g. bonds, commodities, equities) that shows the movement or change in a specific securities market.

ETFs combine the benefits of stocks, unit trusts and index funds because they share common characteristics:

Easy access to diversification – own a basket of securities e.g. an entire market, country or region with a single trade

Flexibility – buy and sell during trading hours just like a stock

Low cost – low management fee and no upfront fee

Transparency – you know what you are buying as the underlying securities are disclosed. Prices are available real-time throughout the trading day.

Liquidity – Investor can redeem units easily and obtain cash by the 3rd market day after trade date (T+3).

Affordability – For a small sum of money, you can invest in your desired securities investment.

Similar to trading in stocks, you will be required to have a Central Depository System (CDS) account and a trading account maintained with a broker. You may buy or sell ETFs through your broker, remisier or via online trading during trading hours.

What do I have to pay when buying and selling ETFs?

Like buying and selling stocks, investors need to pay brokerage commission, stamp duty, clearing fees and GST, where applicable.

The market price of an ETF is usually very close to the Net Asset Value (NAV) of the fund i.e. market value of the underlying stocks and any net income not distributed.

However, the price of an ETF can be affected by demand and supply in the market.

Most ETFs pay dividends to their fund holders either half yearly or yearly. You are advised to refer to the distribution policy in the prospectus or offering document of the ETF.

In the same manner as share transactions i.e. not later than 3 market days after the transaction date (T+3).

Yes, investing in ETFs, as in investing in stocks, is subjected to the same ups and downs of the market. The performance of ETF may be directly affected by the performance of its component stocks or bonds.

You are advised to know the following before investing:

Information on the index that the ETF is tracking

Fees and charges that will be borne by investor

What is the Indicative Optimized Portfolio Value (IOPV) for an ETF?

IOPV or Intraday Net Asset Value (iNAV) is the value that is intended to approximate the value of the securities held in the portfolio by the ETF fund manager and should closely represent the value of the fund throughout the day.

Bursa Malaysia, as the primary listing exchange for an ETF, will disseminate the IOPV value for each primary listed equity ETF throughout the trading day. For cross-listed ETFs, IOPV of the particular ETF can be obtained at the fund managers website.

ETFs vs. Unit Trust Funds: Know the Difference

ETFs hold a basket of securities to track performance of a specific index. Unit trust funds also hold a portfolio of assets. Nevertheless, both funds have marked differences.

The main differences between ETFs and unit trust funds are:

No active selection of underlying securities and returns made by ETF fund manager.

ETF fund manager will closely follow performance of its benchmark index.

Investors pay fund managers to select stocks (or other securities) in order to outperform a selected index.

Performance of unit trust funds depends on the fund managers skills and the supporting structure provided by the fund management company.

The main difference is in the cost of investing (sales fees vs. ETFs brokerage charge) and the annual management fee.

ETFs are bought and sold like stocks throughout the trading day.

Buy and sell via agents working for a fund management company or through institutional unit trust agents such as banks.

Purchases or redemptions are done at a single price at the end of a trading day as the price of units in a fund depends on the closing price of its components.

There is a brokerage fee, clearing fee and stamp duty, similar to trading shares.

The annual management fee usually is less than 1% of the funds NAV.

Usually impose an upfront sales fee between 3% to 5%.

Both funds typically levy a back-end charge or exit fee which investors pay when they redeem the fund.

Funds annual management fee can be between 0.75% to 5% per annum of the funds NAV.

Like shares, there is no minimum investment amount for ETFs.

Most unit trusts usually require an initial minimum investment of RM 1,000.

Subsequent investments are lower, typically RM 100.

More Similarities and Differences between ETFs and Funds listed here.

*Only for specific unit trust i.e. through a bank

**Only for specific unit trust funds, typically bond funds.

***Most funds only reveal their top ten holdings.

*T+3 means the 3rd market / business day after trade date.

Investments in an ETF can potentially have two types of returns:

The fund manager usually receives dividends from the securities that comprise the ETF baskets. The dividends are usually distributed to ETF unit holders following the deduction of management fee.

Yes. The prospectus is a very important document that needs to be read by a prospective investor prior to investing. The prospectus discloses important information, such as the funds objectives, fund managers background, management fees as well as the risks of investing in it.

The trading price is a bid-and-ask price that appears on a trading screen. The trading price of an ETF is determined by demand and supply in the market. You can view the delayedETF prices here.

The net asset value (NAV) of an ETF is the sum of its assets minus liabilities. Usually, the NAV of an ETF is calculated by the ETF fund manager and will bepublished here.

In addition, the IOPV or the indicative NAV (also known as iNAV) for ETF with underlying stocks listed on Bursa Malaysia are constantly calculated during trading hours. Investors can view the 15 minutesdelayed IOPV here.

Most ETFs have a Designated Market Maker to provide competitive bid/ask price to ensure that investors are able to get in and out of the market throughout the trading day.

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