A plain-English breakdown of how exchange-traded funds and unit trusts differ — and which one most Singapore investors should choose.
If you've been investigating ways to start investing in Singapore, you've probably come across two terms that sound similar but work very differently: ETFs (exchange-traded funds) and mutual funds (also called unit trusts in Singapore). Both pool investor money to buy a diversified basket of assets — but the resemblance ends there.
An ETF trades on a stock exchange — like SGX, NYSE, or London Stock Exchange — just like an individual stock. You can buy and sell it during market hours at the prevailing market price. Most ETFs passively track an index (the S&P 500, the Straits Times Index, MSCI World, etc).
A unit trust doesn't trade on an exchange. You buy or redeem units directly from the fund manager, usually at the end of the trading day, at the calculated Net Asset Value (NAV). Most unit trusts sold in Singapore are actively managed — a portfolio manager makes daily decisions about what to buy and sell.
Lower fees. This is the big one. Passively-managed ETFs typically have expense ratios between 0.03% and 0.50% annually. Actively-managed unit trusts in Singapore typically charge 1.5% to 2.5% in annual management fees, plus a 3-5% sales charge when you buy in. Over decades, that difference compounds into hundreds of thousands of dollars on a meaningful portfolio.
Transparency. ETFs disclose their full holdings daily. You always know exactly what you own. Unit trusts typically disclose holdings monthly or quarterly, often with a delay.
Liquidity. You can sell an ETF intra-day at any time the market is open. With a unit trust, redemptions are usually processed at end-of-day, with the cash arriving a few business days later.
Tax efficiency. Because ETFs trade on exchanges, you don't trigger capital gains distributions inside the fund just because other investors are redeeming. Unit trusts can pass internal capital gains through to all holders — which doesn't matter much in Singapore (no capital gains tax) but is a real issue in other tax jurisdictions.
To be fair: not always. Unit trusts make sense in a few specific situations.
Niche or hard-to-access markets. Some emerging-market or specialised strategies (like specific factor tilts, frontier markets, or alternative asset exposure) may only be available through actively-managed unit trusts.
Active management you actually believe in. If you've done your due diligence on a specific manager with a defensible long-term track record (after fees, against an appropriate benchmark — most don't pass this test), an actively managed unit trust can be appropriate.
Convenient for small recurring amounts. Some Singapore platforms make small monthly unit trust contributions easier to set up than ETF purchases, though this gap has closed significantly with robo-advisors.
The most damning data on unit trusts is this: over any 15-year period, roughly 85-90% of actively managed equity funds underperform their benchmark index, after fees. This is consistently true across markets, time periods, and methodologies — it's known as the SPIVA study and has been replicated for over 20 years.
Translation: most of the time, you're paying 1.5-2.5% per year for results that lag a cheaper, passive index ETF by a meaningful margin. The fees compound. The underperformance compounds. The combination is brutal over a 20-30 year investing horizon.
Our portfolios are built entirely from low-cost passive ETFs from issuers like Vanguard, iShares, and SPDR — selected for deep liquidity, broad market exposure, and expense ratios typically between 0.05% and 0.30%. We believe the data on passive investing is too strong to ignore.
If you'd rather buy ETFs yourself through a brokerage, that's a perfectly valid choice. If you'd prefer someone build, monitor, and rebalance a globally diversified ETF portfolio on your behalf — that's what Smartly does, for a single transparent annual fee. Learn how →
Continue reading:
Open a Smartly account and put what you've read into practice — in 5 minutes, from S$50.