How to invest in exchange-traded funds (ETFs)

How to buy ETFs in Australia

To start investing in ETFs you buy ETF units, which are similar to company shares. ETF units can be ought the same way that you do shares, through a broker or online share trading platform.

After you've signed up to a brokerage and decided which ETF to buy, you can search for the name or ticker code of the ETF. You'll soon notice that each ETF has a price. This is called the unit price.

6 steps to buying an ETF

1. Compare online share trading platform
   
2. Sign up for a trading account. You'll need to provide personal details and proof of ID
   
3. Transfer money into your trading account
   
4. Search for the name or ticker code of the ETF you want and place an order
5. Check the ETF unit price and make sure you're happy with it
6. Track the performance of your ETF

Before you invest, check out Australia's best-performing ETFs.

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Important: Share trading carries risk of capital loss.

Disclaimer: Trading CFDs and forex on leverage is high-risk and losses could exceed your deposits.

The main difference between an ETF and a mutual fund is an ETF is listed on an exchange such as the Australian Securities Exchange (ASX).

Compare online ETF brokers

ETFs are bought and sold just like regular stocks, so you'll need to choose an online broker before you are able to invest.

Sort by:

Name	Product	Brokerage on AU ETFs	Inactivity fee	Markets
eToro (global stocks)		N/A	US$10 per month if there’s been no login for 12 months	Global shares, US shares, ETFs	Zero brokerage share trading on US, Hong Kong and European stocks with trades as low as $50. Note: This broker offers CFDs which are volatile investment products and most clients lose money trading CFDs with this provider. Join the world’s biggest social trading network when you trade stocks, commodities and currencies from the one account.	Go to site More Info	Compare	loading Fetching your data...
ThinkMarkets Share Trading Exclusive		$8	No	ASX shares	Exclusive: Sign up through Finder and get 3 months of free trading up to 50 trades. Offer available to new customers only. Following your first three months, enjoy $8 flat fee CHESS sponsored brokerage as well as free live stock data all from the convenience of an easy-to-use mobile app	Go to site More Info	Compare	loading Fetching your data...
IG Share Trading		$2.50 for July + August ($5-$8 standard fee applies thereafter)	No	ASX shares, US shares, UK shares, ETFs, and more	For the months of July and August, trade Aussie shares from $2.50 and international shares from $0. T&Cs apply. Enjoy some of the lowest brokerage fees on the market when trading Australian shares, international shares, plus get access to 24-hour customer support.	Go to site More Info	Compare	loading Fetching your data...
Tiger Brokers Exclusive		$6.49	No	ASX shares, Global shares, Options trading, US shares, ETFs	Exclusive to Finder: Sign up to Tiger through Finder and on completion of your first deposit of any amount or transfer of shares receive 4 extra free grab shares. T&Cs apply. Get started with $0 brokerage on ASX and US stocks for the first 3 months upon completion of your first qualifying deposit. Also receive a free Apple share if you deposit $3,000 or more.	Go to site More Info	Compare	loading Fetching your data...
SelfWealth (Basic account)		$9.5	No	ASX shares, US shares	Trade ASX and US shares for a flat fee of $9.50, regardless of the trade size. New customers receive free access to Community Insights with SelfWealth Premium for the first 90 days. Follow other investors and benchmark your portfolio performance.	Go to site More Info	Compare	loading Fetching your data...
CMC Markets Invest		$0	No	ASX shares, Global shares, mFunds, ETFs	$0 brokerage on global shares including US, UK and Japan markets. Trade up to 35,000 products, including shares, ETFs and managed funds, plus access up to 15 major global and Australian stock exchanges. Plus, buy Aussie shares for $0 brokerage up to $1,000. (Limited to one buy order per stock per trading day).	Go to site More Info	Compare	loading Fetching your data...
Bendigo Invest Direct		$19.95	No	ASX shares, Global shares, Options trading, mFunds, ETFs, Warrants	Gain access to 12 markets from one account with Bendigo. Invest in Australian shares and access major international markets through a trusted local brand. Plus, fine tune your investment knowledge with Bendigo’s advanced research and analysis tools.	Go to site More Info	Compare	loading Fetching your data...
GO Markets Share Trading		$7.70	No	ASX shares, Forex, CFDs, ETFs	Zero brokerage on your first 20 trades Trade 2,500 ASX listed shares from desktop or mobile and enjoy $0 brokerage on your first 20 trades, $7.70 trades after.	Go to site More Info	Compare	loading Fetching your data...
Saxo Capital Markets (Classic account)		$5	No	ASX shares, Global shares, ETFs	Access 6,400 ETFs over 30 exchanges worldwide Low fees for Australian and global ETF investing, no inactivity fees and foreign currency accounts available.	Go to site More Info	Compare	loading Fetching your data...
Bell Direct Share Trading		$15	No	ASX shares, mFunds, ETFs	Invest in Australian shares, options and managed funds from the one account with no inactivity fee. Bell Direct offers a one-second placement guarantee on market-to-limit ASX orders or your trade is free, plus enjoy extensive free research reports from top financial experts.	Go to site More Info	Compare	loading Fetching your data...
Superhero share trading		$0	No	ASX shares, US shares, ETFs	Sign up & fund your account with A$100 or more and receive US$10 of Tesla stocks on Superhero. T&Cs apply. Enjoy $0 brokerage on US stocks and buying ETFs as well as a flat $5 fee to trade Australian shares.	Go to site More Info	Compare	loading Fetching your data...

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Important: Share trading can be financially risky and the value of your investment can go down as well as up. Standard brokerage is the cost to purchase $1,000 or less of equities without any qualifications or special eligibility. Where both CHESS sponsored and custodian shares are offered, we display the cheapest option.

Example: Buying an ETF

Say you want to invest $1,000 into your ETF of choice and the ETF unit price is $1. The brokerage service you use also charges $10 each time you place a trade (leaving you with $990 to invest). Excluding the brokerage fee, you would buy 990 ETF units at $1 each.

Before you buy, it's a good idea to compare the ETF unit price with its iNAV price (available from the ETF issuer). The iNAV price tells you how much the price of the ETF should be relative to the assets it holds. When there's a lot of volatility in the market, sometimes these 2 prices can be very different. If the ETF unit price is higher than the iNAV price, then you're probably paying more than what the ETF's true value is.

For this reason, it's a good idea to set a "limit order" based on the iNAV price when you're buying ETF units. A limit order allows you to select the price that you'd like to buy the ETF at. Once the ETF falls to that price, your order will go through.

Pro and cons of ETFs

Types of ETFs

The humble ETF has evolved starting out as a simple passive investing index. Nowadays you can get an ETF for pretty much anything ranging from your more traditional passive approach, to an active strategy, thematic strategy and everything in between.

Here are the different ETF types you might want to trade:

Passive ETFs

Also known as indexed ETFs or index funds, these funds aim to replicate the returns of a specific index or benchmark. For example, you may want to invest in a fund that tracks the performance of the S&P/ASX 200 (Australian stock market) or the S&P 500 (US stock market).

Active ETFs

Also referred to as exchange traded managed funds (ETMFs), active ETFs aim to outperform the market or a particular index. These sometimes come with a higher level of risk and usually have higher management fees.

Factor and Smart Beta ETFs

These combine both active and passive strategies. They typically track an index but factor in additional variables, such as a higher weighting of smaller companies. Smart Beta ETFs track non-traditional indices designed to invest in a selection of company stocks based on their own set of rules. The idea is to outperform the market.

Structured and synthetic ETFs

Synthetic ETFs are where this starts getting a little bit more complex.

ETFs access investment assets in 2 ways: physically or synthetically. ETF issuers of a physical (or standard) ETF have purchased the underlying assets on the index it aims to replicate.

On the other hand, structured or synthetic ETFs try to replicate the performance of their underlying assets through the use of derivatives. This is because it’s not always practical to hold physical assets. For example, gold or commodity ETFs are often synthetic due to storing large amounts of gold is often difficult. Instead of investing in an actual lump of gold, you’re investing in a contract that promises returns based on the commodity’s price movements.

Warning: Because structured products may use complex investment strategies, they can be much riskier than a standard index ETF.

You can read more about synthetic ETFs here.

Commodity ETFs

Commodity ETFs, or exchange traded commodities (ETCs), track the performance of an underlying physical commodity, such as gold, natural resources or agricultural products.

What are the costs of investing in ETFs?

When you invest in an ETF, the first cost you'll be aware of is the ETF unit price. However, there are other less obvious costs you need to be aware of. While ETFs typically charge lower fees than unlisted managed funds, this isn't always the case.

You should always read the PDS provided by the ETF issuer for full details of any fees that apply and how they will affect your investments. Here are the main costs to take note of:

• Management fees. Just like any other managed fund, ETFs have management fees, which are sometimes referred to as the management expense ratio (MER). This fee is charged by the ETF issuer and is usually included in the unit price.
• Brokerage fees. You’ll need to pay brokerage fees whenever you buy or sell ETF units. These fees vary depending on the online broker you choose but usually start at around $10 or $20.
• The buy/sell spread. This is the difference between the highest price you’re willing to pay for an ETF unit and the lowest price at which a seller is happy to sell. The wider the spread, the more it can cost you.

Do ETFs pay dividends?

Some ETFs pay dividends if the underlying company stocks pay dividends. However, it also depends on whether the fund manager chooses to pass this on, so check this first if this is a priority. This information should be available in the ETFs product disclosure statement.

Most of the time, ETFs will pay their dividends on a quarterly basis, though this isn't a rule. If you're interested in ETF dividends, check the yield, how often it's paid and whether you can reinvest the payments back into the ETF if you choose or if it's paid into your account.

How do I compare ETFs?

Like share prices, the price of ETF units can fluctuate day to day. However, many ETFs move up and down in line with the index they are tracking, so there are a few simple tips to keep in mind to help you get more out of your ETF investments:

• Compare the price. ETF issuers regularly provide net asset value (NAV) information, often in real time. This is commonly referred to as the indicative NAV (or iNAV). By comparing it with the buy and sell (unit) prices quoted by your ETF broker, you can determine whether you will get value for money.
• Consider limit orders. The iNAV can change quite quickly throughout the day as volatility in underlying markets drives it up or down. If you're investing in a volatile ETF, such as ETC, it may be safer to place limit orders rather than market orders when buying or selling, which will ensure that you get the price you want.
• Management fees. All ETFs charge management (MER) fees that are calculated as a percentage of your returns. The average fee is around 0.8% of your funds – make sure the fees match your returns.
• Markets and sectors. ETFs have different themes. Some ETFs track large stocks from the US while others track small-cap stocks from Australia or specific sectors such as health, tech or renewables.
• Choose carefully. ETFs come in all shapes and sizes, and carry different levels of risks depending on the type of assets they track. For example, while an ETF focused on resource stocks might offer the potential for higher returns, it also comes with a higher risk attached than an index that tracks the top 200 stocks.

Frequently asked questions

• How do I know if an ETF is a synthetic ETF?

  Synthetic ETFs must feature the word “synthetic” in the product name.

• If an ETF tracks a share market index like the S&P/ASX 200, does it buy equal shares of all companies featured in that index?

  No. The number of stocks purchased by an ETF will reflect the importance of each stock to the performance of the index. For example, an ETF would hold more shares in a large company like Rio Tinto or CSL than it would in the smallest companies in the top 200 index.

• Can a robo-advisor help me invest in ETFs?

  Yes, many robo-advisors offer access to diversified ETF portfolios. You can find more info in our robo-advisor guide.

• Do ETFs allow me to track ASX indices?

  Yes, there are ETFs available that track ASX indices and are traded on the ASX.

• Can I use a margin loan to buy an ETF?

  Yes, you can use a margin loan to fund the purchase of ETF units.

• What is the minimum amount I can purchase when buying ETF units?

  You can purchase as little as 1 share in an ETF.