Kenanga Investors Berhad

ETFs vs. Unit Trust Funds

ETFs vs. Unit Trust Funds: Knowing 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:

ETF
Unit Trust
Investment Objective
  • Passively managed.
  • Designed to follow performance of an index.
  • No active selection of underlying securities and returns made by ETF fund manager.
  • ETF fund manager will closely follow performance of its benchmark index.
  • Actively managed.
  • 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 manager's skills and the supporting structure provided by the fund management company.
Buy and Sell Transactions
  • Listed and quoted on a stock exchange.
  • 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.
Cost to invest
  • 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 fund's 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.
  • Fund's annual management fee can be between 0.75% to 5% per annum of the fund's NAV.
Minimum Investment AmountNo
  • Require an initial minimum investment of RM1,000.
  • Subsequent investments are lower, typically RM100.
Continuous trading and pricing throughout the trading day?YesNo
Prospectus available?YesYes
Can be purchased online?YesYes
Redemption charges for withdrawalsNoYes
Possible to view the underlying securities?YesNo
Possible to receive dividends?YesYes

* 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.

Source: Bursa Malaysia

Product Comparison
ETFS
Stocks
Unit Trust
Diversification
Real-time dissemination
Trade viaBrokerBrokerAgent
Purchase of ETF / Stocks / Unit TrustT+3T+3*Upfront

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