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ETF Basic

What is ETF? Invest in Exchange Traded Funds

ETFs in Vietnam primarily track the best-performing indexes, allowing investors to invest in a diversified portfolio and earn a long-term profit. Apart from stocks and bonds, ETFs are an investment option that is both secure and profitable. Before you plan to invest in the first ETF, it is important to be aware of the basic understanding and relative differences between the ETF’s choices. Let’s get close to “What is an ETF ” in this article. 

Table of contents:

1. What is ETF?

2. How is an ETF Created?

3. Why Invest in Exchange-traded funds?

  

WHAT IS Exchange Traded Fund_ (Vietnam ETF)
WHAT IS Exchange Traded Fund_ (Vietnam ETF)

 

1. What is ETF?

  • Exchange-traded fund (ETF), is like a big basket of different stocks that follow a specific index. Investors can buy and sell funds of this basket on the stock market, just like individual stocks. The value of the ETF goes up and down depending on how the stocks in the basket perform.
  • ETFs in Vietnam primarily track the best-performing indexes on the market, allowing investors to invest in a diversified portfolio and earn a long-term profit. With this ETF, you can target specific stocks and industries that do well, like financials or top stocks.

Types of ETFs (Exchange-traded funds)

  • Take this example: Investors invest 5000 US dollars in the DCVFM E1VFVN30 ETF, which tracks the VN30 index. By investing you can hold exposure to the top shares listed on the VN30 index without having to buy each stock separately. This simplifies the investment process and provides a cost-effective way to gain exposure to the Vietnamese stock market.
  • List of the top Vietnam Exchange-Traded Funds (ETFs):

1. DCVFMVN DIAMOND FUEVFVND: Tracks the Vietnam Diamond Index (VNDIAMOND), including the top 10-20 stocks in leading industries, with FOL of up to 95%.

2.FUEVN100: Simulates the VN100 Index, measuring the performance of the top 100 most liquid stocks on the Ho Chi Minh Stock Exchange.

3. Top Exchange-traded funds track Vietnam financial index such as: FUESSVFL, FUEKIVSL

4. ETF that simulate the VN30 Index :KIM VN30 ETF (FUEKIV30), SSIAM VN30 ETF (FUESSV30), MAFM VN30 ETF (FUEMAV30).

>>>Find out which Vietnam ETFs are active in 2024 

2. How is an ETF created?

  • Filing and Approval: Fund manager (FM) submits a detailed plan to the Securities and Exchange Commission (VSEC) for approval. Once approved, the fund manager collaborates with an authorized participant who plays a crucial role in creating the shares that will eventually be traded on the stock market.
  • Creating the ETF Shares: AP purchases stock shares and assembles them into ETF creation units. Subsequently, the FM delivers shares of these creation units to the authorized participant. This transaction is conducted in-kind of exchanging of securities for ETF shares.
  • Trading on the Market: After receiving the ETF shares, the AP will sell them on the open market to investors, similar to trading individual stocks. The underlying securities used to form the creation units remain in the trust account, and typically experience minimal activity, primarily involving the distribution of dividends from the stock held in the trust to ETF owners and providing administrative oversight. 

3. Why Invest in ETF?

Investing in ETFs is like buying a package that holds many different investments, like stocks or bonds. Here’s why it’s good for investors:

1. Simplicity: ETFs allow investors to buy shares in a fund that mimics the performance of an index or sector, without requiring deep knowledge of individual stock picks. This simplicity makes it easier for new investors to get involved in the market.

2. Diversification: ETFs offer instant diversification across a wide array of assets within a single fund, particularly beneficial for beginners with limited capital, as it spreads out risk and minimizes the impact of any single asset’s performance.

3. Low Cost: ETFs have lower expense ratios than managed funds like mutual funds,  especially for new investors who may start with smaller amounts and can invest without a significant burden of fees.

4. Liquidity: ETFs are traded on stock exchanges, which means they can be bought and sold throughout the trading day at market price. This high liquidity is advantageous for new investors who might need to quickly adjust their portfolios or access their funds.

5. Transparency: Offer a high level of transparency regarding their holdings. Investors can easily see what assets the ETFs hold, which helps them understand where their money is going and monitor the performance of their investments. 

The provided information is to improve investors’ understanding of Exchange-Traded Funds (ETFs). Before investing, comprehend and ensure it aligns with your goals.

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