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How to invest in exchange-traded funds (ETFs)

What you need to know about ETFs to start investing in Australia.

We’re reader-supported and may be paid when you visit links to partner sites. We don’t compare all products in the market, but we’re working on it!

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

How ETFs work?

An exchange-traded fund (ETF) is where you own a bundle of shares or options in a single trade that is listed on a stock exchange. It is a pooled investment security that typically tracks a market index, a theme, commodity or other assets. For example, the iShares Core S&P/ASX 200 ETF is a market-tracking ETF made up of the 200 biggest companies in Australia. Investors in this ETF own a small percentage of each company based on market weighting.

So larger companies like BHP and Commonwealth Bank make up a larger holding than say a smaller company like Zip

Each ETF is allocated an ASX code and can be bought and sold by investors the same way that you would buy and sell shares.

By investing in ETFs, you can easily create a diversified portfolio and spread your investment across a wide range of asset classes, including Australian shares, global shares, fixed income, debt, foreign currencies, commodities and metals.

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.

1 - 11 of 11
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.
ThinkMarkets Share Trading
$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
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.
Tiger Brokers
Exclusive
Tiger Brokers
$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.
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.
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).
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 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.
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.
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.
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.
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Compare up to 4 providers

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.

Ask an expert: What are the main benefits of buying an ETF?

ETFs are a great option for those just getting started with investing as they give investors greater visibility to a number of companies and sectors. The stock market can be very intimidating for those just getting started but ETFs offer diversification which can otherwise often take a long time to build if investing in individual stocks.

There is also generally a cost saving which comes with investing in ETFs as you're able to save on brokerage by buying units of a singular stock as opposed to paying for multiple trades for stock in every company you're interested in. You can also build a diversified portfolio of stocks more quickly – without needing a large amount of money upfront. Investing in ETFs also helps you reduce your risk, as you don't have all your eggs in one basket – or all your money in one company.

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John Winters
Superhero, Co-Founder

Pro and cons of ETFs

Pros

  • Index fund investing. Index funds have become a popular way to invest relatively safely in the stock market. Most (not all) ETFs are types of index funds.
  • Diversify your portfolio. Buying units in just 1 ETF allows you to invest in many shares and asset classes at once.
  • Dividend income. If the underlying assets held by an ETF pay dividends, those dividends and franking credits (if applicable) will be passed on to you.
  • Relatively inexpensive. Creating a diversified portfolio of shares and other investment options usually requires a lot of money. But if you invest in ETFs, you can get started with as little as a few hundred dollars at a time or less if you use a micro-investing platform such as CommSec Pocket or Raiz./li>
  • Easy exit. Unlike some other types of investments that lock you into a contract for a fixed term, ETFs are open-ended meaning they are easy to transact with./li>

Cons

  • Losing money. If the underlying assets owned by an ETF don't perform as hoped, the value of an ETF will fall – and the value of ETF units you own will fall along with it.
  • Tracking errors. As we mentioned above, ETFs don't always exactly mimic the performance of the index they're designed to track, with fees, taxes and other factors potentially resulting in lower-than-expected returns.
  • Risks associated with individual ETFs. The underlying assets held by your ETF also come with their own risks, depending on what they are tracking.
  • International taxes. If you buy units in an ETF that is listed in a country other than Australia, you may need to pay foreign taxes. Make sure you're aware of all tax implications of an ETF before you commit any funds.

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.

What is a derivative?

Derivatives are products that derive their value from underlying assets like commodities or shares. Instead of purchasing a physical asset, it is a contract with an agreed-upon return based on the price of the movements of the underlying asset.

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

Disclaimer: This information should not be interpreted as an endorsement of futures, stocks, ETFs, CFDs, options or any specific provider, service or offering. It should not be relied upon as investment advice or construed as providing recommendations of any kind. Futures, stocks, ETFs and options trading involves substantial risk of loss and therefore are not appropriate for all investors. Trading CFDs and forex on leverage comes with a higher risk of losing money rapidly. Past performance is not an indication of future results. Consider your own circumstances, and obtain your own advice, before making any trades.

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