An Exchange Traded Fund (ETF) is an index fund that trades like an ordinary stock. An ETF enables an investor to have less risky exposure to the stock market. Investing in an ETF means you will get a return on the stock market index. The ThaiDEX SET50 ETF, introduced in September 2007, is the first equity ETF in Thailand.

Investors can buy and sell units in the ETF during SET trading hours using ordinary brokerage accounts.

Your broker will charge you normal transaction costs (commissions) associated with the purchase or sale of the ETF. Trading commissions in the secondary market will be 0.1% which is substantially less than the 0.25% commission charged for trading stocks and index funds.

There are two types of prices for an ETF:

1. The trading price is a bid-and-offer price that appears on a trading screen. The trading price of an ETF is determined by demand and supply in the market.
   
   
2. The net asset value (NAV) of an ETF is the sum of its assets minus its liabilities. Usually, the NAV of an ETF is calculated once a day by the ETF fund manager. In addition, the investment company will also calculate and report the “Indicative NAV” to investors on a minute-to-minute basis. Indicative NAV measures the intra-day net asset values of the ETF. Investors can use them as references for the investment’s underlying value, which in this case is the SET50.

Investments in an ETF have two types of returns:

• Capital gains. Because investors can trade an ETF like an ordinary stock, they can buy when it is at a low price and sell it at a high price to realize a profit
  
  
• Dividends. Usually the fund manager will receive dividends from the stocks that comprise the SET50. The fund manager will then redistribute dividends to ETF holders after subtracting a transaction fee.

Investing in ETF entails the same economic, political and the other risks that affect the SET50 index. Investment returns and principal value will fluctuate according to the economic and political climate, just as shares do. Therefore, when an ETF is redeemed, it may be worth more or less than its original cost.

Investors are also subject to risk of tracking error, which is the disparity between the returns of the ETF and that of the underlying index which the fund manager is trying to replicate. Tracking error may be due to several causes, such as errors the fund manager made in tracking the underlying index, or added costs of ETF fees and expenses.

An ETF is traded in board lots which are the same size as normal board lots. The minimum lot size is 100 units. If the ETF has a trading price of THB 5.50 per unit, the minimum investment amount would be THB 550.

Yes, an investment in an ETF is subject to similar taxes and stamp duty as investing in a stock. Investors can find the details of taxes on this Web page: http://www.set.or.th/en/education/trading/tax_p1.html

Yes. The prospectus is very important material a prospective investor should read closely before investing. The prospectus discloses important information, such the fund’s objectives, management, fees and performance record as well as the risks of investing in it.

The table below shows major differences between investing in an ETF, stock and an index fund.