financialtreat – will explain about ETFs Vs Mutual Funds, What are ETFs and How They Differ from Mutual Funds which you will get in the following article. let’s look at this article carefully!
Mutual funds are a form of financial investment that has the potential to add profits to our future needs. Most of us also understand the four mutual fund models that are generally present in Indonesia, namely money market mutual funds, fixed income mutual funds, stock mutual funds and mixed mutual funds. Therefore this article will review about ETFs Vs Mutual Funds.
However, there are actually other types of mutual funds that can be used as an alternative investment for retail investors like us. One of them is index-type mutual funds and Exchange Traded Funds (ETFs). What is an ETF is one of the instruments in the capital market that you can rely on for profit purposes. With ETFs Vs Mutual Funds you will know the difference between the two.
Understand What an ETF is and How It Differs from Mutual Funds
It is likely that there are still many who are not familiar with ETFs because they lose prestige to stocks and mutual funds, even though ETFs are part of mutual funds. Here you will understand what an ETF is, privileges, risks, to the disparity of ETFs and mutual funds.
What is an ETF?
The capital market is a place that provides investment instruments such as stocks that are traded in general to investors. However, not only stocks, it turns out that there are also mutual fund products that are traded freely on the Indonesia Impact Exchange. Its name is ETF. An Exchange Traded Fund (ETF) is a mutual fund whose offering platform is in the form of a Collective Investment Contract whose participation units are traded on impact exchanges.
Product ETFs are basically open-ended mutual funds that trade what a stock looks like. So what is an ETF is a mutual fund combined with a stock buying and selling transaction platform. Just like mutual funds in general, ETF transactions are paid by participating dealers who work together with investment managers who are ready to manage what an ETF is.
In Indonesia, there are not as many participating dealers or ETF selling agents as investment manager companies. There are only 6 whose existence is considered by the authorized forum, namely Berdikari Sekuritas, Indo Premier Sekuritas, Bahana Sekuritas, Philip Sekuritas, Sinarmas Sekuritas, and Panin Sekuritas.
Just like other impacts present in the capital market, transactions of what etfs are are also supervised by authorized forums such as the Indonesia Impact Exchange, the Financial Services Authority, and the Indonesian Central Impact Depository.
ETF Privileges
ETFs have advantages that make them worthy of being chosen by investors who want to earn money. Here comes the explanation.
1. Easy transactions
Just like mutual funds and stocks whose transactions are run online, ETFs are too. You can buy or sell ETFs through a system application that provides ETF instruments.
2. Low management costs
When compared to mutual funds, the fees for the management of these ETFs are lower. For transaction fees in the secondary market, it is also in accordance with the broker’s commission.
3. Low risk
The risks that ETF instruments have are low because their liquidity is guaranteed.
4. Can own several shares
When you buy 1 unit of Etf, it can contain a variety of stocks that are currently favored. You can also have varied stocks in this ETF.
5. The information is easy to get
For those of you who want to understand more about ETF products that are present in the capital market, you will easily get them through participating dealers or it can also be on formal websites owned by the Indonesia Impact Exchange.
6. Diversification
ETFs are instruments that will make it easier for you to diversify. The reason is because in ordering etfs you can buy various stocks that have various values. The transaction process is practical because you don’t need to buy one by one the various stocks that exist for Etf products.
ETF Risks
Not only privileges, what is an ETF also has risks that you need to consider. Here’s the list.
1. Reduced value of participation units
Just like mutual funds in general, ETFs can also experience a decrease in value in participation units due to the reduced value of their investments.
2. Liquidity risk
What is an ETF can also have liquidity risks, especially for ETF units that are still fairly new and not very popular, so that there are still few enthusiasts. Competition in the world of Indonesian ETFs is fierce. Moreover, ETFs are still less popular when compared to general mutual funds and stocks, even though the potential is there.
3. Capital gains tax
When you as an investor want to take a profit or cut loss due to losing money by selling ETF units to other investors, you will be taxed 0.1Percent of the total transaction.
This is not only true when you take profit, but also when taking the path to minimize losses. You can’t miss this tax because it is included as an obligation that must be done.
ETF examples
As news, there are 48 ETF units present in the Indonesian capital market and it certainly has the potential to increase in the future due to investor interest in ETFs that are getting bigger. An example of an ETF that you can choose is called the Idx30 ETF. According to the name, those of you who buy this ETF will own the stocks that are members of the Idx30 index that is in effect at that time.
Another example is the etf that first appeared in Indonesia, which was formed to attract investors called Premier ETF Lq45. Adjusted to its name, the ETF contained stocks that were on the Lq45 list at the time. You can also own A comprehensive Lq45 stock with a single purchase on the ETF product. Interesting, isn’t it?
How to Invest in ETFs
You can invest in ETFs in two places, namely the main market and the secondary market. The main market is where first-ever influence transactions were offered in the capital market, before being listed on the Bei. Meanwhile, the secondary market is the area of impact transactions after the listing by Bei.
You need to go to a formal participant dealer who has been appointed by the Indonesia Impact Exchange. Later, you will be asked to connect to the RDN or Customer Fund Account. Once done, you can deposit funds according to the minimum requirements of the participation units provided by the participating dealer. Later, the dealer will inform the price of of course the participation unit you choose. You also just need to complete the transaction, which is assisted by the participating dealer.
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ETFs Versus Mutual Funds
Although ETFs are mutual funds, there is a fundamental disparity between ETFs and mutual funds in general. This is the explanation.
1. Transaction management
ETF transactions are carried out through etf-specific participating dealers, while mutual funds can be carried out by relying on investment manager companies.
2. Minimum purchase
In EtFs, you are required to make a minimum purchase in the main market of 1,000 lots or equal to 100,000 units or also known as creation units. As for the secondary market, you can order 1 lot of ETFs or as many as 100 units. Unlike mutual funds that can be ordered starting from only 1 unit.
3. Transaction fees
Another disparity to note is the transaction costs whose calculations are different. For ETFs, each broker’s transaction fee is different for the commission, you can ask the broker directly. For mutual funds transaction fees are distinguished when buying and selling. It is usually not far from 1Percent to 3 Percent of the total transaction.
4. Transaction risk
In ETFs, portfolio management is regulated by investors themselves because you can make transactions during the operating hours of the Indonesia Impact Exchange. As for mutual funds, transaction risk lies with investment managers and the management of their portfolios is also regulated by them.
5. Price
The price applicable to etfs is usually real time, while for mutual funds the price is determined according to the price in effect at the end of the day. What is an ETF is included as an attractive investment to choose from.
Don’t forget to choose a trusted system to streamline your transaction activities. Also choose the type of ETF you crave and learn about the advantages, as well as the risks. Happy investing! Obtaining 18 Percent Return by Helping MSME Players Develop Their Business
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Well, those were some reviews that discuss ETFs Vs Mutual Funds hopefully useful and thank you.