5.4 Investment choices – ETF Fund

ETF or “Exchange Traded Fund” is invested in shares and is listed on the Stock Exchange. If the view of English vocabulary, each word is made up as follows.
* Exchange: means that the navigation unit trusts listed on the secondary market (secondary market) or the stock exchange.
* Traded: means to conduct commerce through its securities or broker, registered as a security, so the liquidity of ETF fund has no difference from normal listed securities that be able to trade throughout the day. Investors can also note the purchase price immediately in read time as well.
* Fund: means ETF fund is a mutual fund with investment policy focused on getting a return equal to claims based index such as the stock price index, SET50 stock price index, etc.

ETF that invested in Thailand first equity stock used the SET50 index price as an underlying asset; fund manager will collect capital from participants to invest by purchasing SET50 shares with the objective that the returns are similar to SET50 index. So the investment portfolio includes 50 stocks with good fundamental, high market capitalization, demand for securities need and high trading liquidity.
SET50 index is one of the common stock price index which is created to reflect the 50 shares movements which have liquidity and high market capitalization. It can be considered as representative value of most shares on the market, calculated by a Market Capitalization Weight with the following formula:
1. Trading price
The purchase price (bid) and selling price (offer) that appeared on the ETF board, which will be determined by demand bid and demand offer of investors in the ETF market.
2. Value per unit (net asset value: NAV)
It is the fund’s net asset value per unit which is calculated from the sales of SET50 index components at the end of days, but for Equity ETF, the company managing the ETF will calculate and report NAV approximately every minute, this calculated values are then called Indicative NAV (INAV)
ETF investing in main Stock Exchanges of other countries has been very popular due to liquidity from the listed securities in Stock Exchange and citation index share the prices as investment in stock which is a component of all the index calculation. Which helps spread the risks of investing; buying a unit of TDEX will be as buying 50 shares.

1. Profit from the difference of the price (capital gain).
If the investors can buy ETF units at low cost and can be sold at a price higher than purchased will profit from the difference in prices.
2. Dividends (dividend).
Investors will receive dividends of the ETF unit holding from the company which is an element of the SET50 Index. The fund manager will provide dividends after deducting fees and expenses of the ETF risk fund.
The ETF investors have the risk from negative factors that may have negative impact on the level. For example, if there is news about economic figures come out poor, SET50 Index may decline in price and affects the SET50 price, and ETF price that investors holding may decrease. The investor may sell ETF units at a cost lower than when first purchased.
In addition to this, investors also face the risk that is called Tracking Error Risk; it is the risk that the return of the ETF units is not equal to the index rate of 100% return.