ETF: The popular investment tool in times of uncertainty

In a volatile economic environment, finding ways to invest that generate stable returns has become a key demand for many investors. One method that has gained increasing attention is choosing ETF, an investment tool that helps diversify risk systematically and efficiently.

This article will provide a detailed overview of what ETF is, how to invest, different types, and recommendations for those considering entering this investment market.

What is an Exchange Traded Fund or ETF?

ETF stands for Exchange Traded Fund, which is an open-ended investment fund registered on the stock exchange and managed by a securities asset management company (AMAC).

In simple terms, ETF is a collection of multiple stocks from various companies bundled into a single fund, allowing investors to access investments in several companies simultaneously with a single purchase. This includes Gold ETFs (Gold ETF), foreign ETFs, domestic stock ETFs, or other types.

What makes ETF different from other investment tools is that ETFs can be bought and sold throughout the trading day on the stock exchange, just like stocks, but with the risk diversification benefits similar to mutual funds.

There are two ways to earn returns from ETFs:

• Capital Gain (Capital Gain) – When you buy an ETF at a low price and later sell it at a higher price, you profit from the difference.

• Dividend (Dividend) – Some ETFs distribute a portion of their profits to unit holders, with the amount depending on your invested units.

Various Types of ETFs Available

1. Equity ETF (Equity ETF)

Invests in stocks of various companies, providing broad access to the stock market, whether it’s major indices, specific industry sectors, or even markets of particular countries.

2. Bond ETF (Bond ETF)

Designed for investors interested in fixed-income securities such as government bonds or corporate bonds, offering relatively stable returns.

3. Commodity ETF (Commodity ETF)

Invests in physical commodities like gold, silver, or oil, suitable for those seeking to hedge against inflation risks.

4. Sector ETF (Sector ETF)

Focuses on specific business sectors such as banking, technology, or retail, allowing investors to bet on industry trends they are interested in.

5. International ETF (International ETF)

Provides access to foreign markets, from emerging markets to the global economy.

6. Multi-Asset ETF (Multi-Asset ETF)

Combines investments in stocks, bonds, and commodities, offering balanced returns and diversification within a single fund.

7. Inverse & Leveraged ETF (Inverse & Leveraged ETF)

Advanced tools for those who want to profit from market declines (Inverse) or amplify returns (Leveraged).

Why is ETF a Good Choice?

1. Efficient Risk Diversification

Instead of investing in a single stock, you invest in a basket of multiple stocks, reducing the impact of any one stock’s poor performance on your entire portfolio.

2. Low Investment Cost

You don’t need a large amount of money to access diversified investments, unlike buying individual stocks which can be expensive and require extensive research.

3. Cost-Effective Fees

ETF generally has lower management fees than typical mutual funds because they often track indices rather than active management.

4. Flexibility in Trading

You can buy or sell ETF shares throughout the trading day at market prices, unlike mutual funds which are only priced at the end of the day.

5. Good Liquidity

Since ETF is popular and traded on stock exchanges, it offers good liquidity, making it easy to sell when you need cash.

Comparing ETFs with Stocks and Mutual Funds

Structure

• ETF: A mutual fund traded on the stock exchange, with prices fluctuating based on supply and demand.
• Stocks: Represent ownership in a single company.
• Mutual Funds: Pool money from many investors to invest in a diversified portfolio of securities, traded at net asset value (NAV) calculated daily.

Risk Diversification

• ETF: Offers diversification through a basket of assets.
• Stocks: Risk is concentrated in a single company.
• Mutual Funds: Diversify risk across various securities and sectors.

Trading

• ETF: Can be traded anytime during market hours at current market prices.
• Stocks: Can be traded anytime during market hours at real-time prices.
• Mutual Funds: Only traded once daily at the NAV price calculated at the end of the day.

Cost

• ETF: Has low expense ratios but may include trading commissions.
• Stocks: Incur trading commissions and possibly dividend taxes.
• Mutual Funds: Have management fees and sales or redemption fees.

Tax Efficiency

• ETF: More tax-efficient due to its unique structure.
• Stocks: Subject to capital gains tax and dividend tax.
• Mutual Funds: May distribute capital gains, creating tax liabilities for investors.

Important Consider Before Investing in ETFs

1. Short-term Volatility

ETF prices move with the market and may incur losses in the short term, but long-term investors often see good average returns.

2. Management Fees

Although ETF fees are low, management fees are still deducted from returns.

3. Tracking Error

Sometimes, ETF prices may not perfectly match the underlying index due to management fees.

4. Potentially Lower Returns than Top Stocks

Because ETF spreads risk, its returns might be lower than investing in a single excellent stock.

Which Investors Are Suitable for ETFs?

Beginner Investors

ETF is highly suitable for those without expertise in stock analysis, as it requires less research and monitoring of individual stocks, involves lower capital, and offers good risk diversification.

Long-term Investors

For those planning to invest over 3-5 years, ETF is an excellent tool, providing stable returns, diversification, and easy management.

Investors Who Prefer Simplicity

If you want a straightforward investment without many complexities, ETF is a good choice because it’s easy to understand and convenient.

How to Buy and Sell ETFs — Not as Difficult as You Think

Trading ETF is very simple, especially if you have experience trading stocks. There are two main methods:

Method 1: Via Streaming Application

You can place buy or sell orders directly through the app, which is convenient and fast.

Method 2: Contact a Broker

A broker can assist with order placement, provide advice, and reduce errors.

Steps to Trade ETF via Streaming Application

1. Register – Sign up for the Streaming app and log in with your trading account number.

2. Go to Watch – After logging in, go to the “Watch” page and select “Favorite 1” (Dropdown).

3. Search for ETF – Choose the “SET” menu and then “.ETFs” to see the list of tradable ETFs.

4. Execute Buy/Sell – Select “Buy” or “Sell” and fill in:

   • The ETF name
   • Number of units (Volume)
   • Desired price
   • Your PIN code

5. Submit Order – Tap “BUY” or “SELL” to confirm the transaction.

Important! Before trading, you must open a stock exchange account.

Summary: ETFs Are a Valuable Choice

Investing in ETF is like building your assets to grow while keeping risks manageable. If you are looking for an investment style that offers:

• Good risk diversification
• Low fees
• Trading flexibility
• Simplicity even for beginners

ETF is the right answer for you.