How to invest in index funds

What are index funds?

Index funds are investments like mutual funds and  exchange traded funds (ETFs)  that passively track the performance of a benchmark index or indices with the aim to mirror performance. For example, if you invest in an ETF that tracks the S&P 500, you have exposure to the performance of all the companies that make up the index.

There are four main types of funds. They differ based on whether they’re listed on a  stock exchange  (on-exchange) or bought and sold from the fund itself (off-exchange), and whether they try to track the market passively or actively.

On-exchange funds are listed on a regulated stock exchange. This can offer more visibility of other orders on the market, which means more transparency. You can see the price at any time and buy into the fund or exit it quickly, as trades are near instant in liquid markets.

Off-exchange funds don’t trade on a regulated stock exchange – instead, they’re bought and sold  over the counter (OTC)  from the fund itself. These funds issue and redeem shares directly to and from investors, which often means less liquidity.

The four main fund types are:

• On-exchange, passively managed funds like ETFs and exchange traded commodities (ETCs)

• On-exchange, actively managed funds like traditional investment trusts, real estate investment trust (REITs) and closed-end mutual funds

• Off-exchange, passively managed funds like index tracker funds

• Off-exchange, actively managed funds like unit trusts and open-end mutual funds

How to invest in index funds

You can invest in index funds via a wide range of ETFs and REITs if you have an investment account with us. Here are steps on how to buy index funds in Singapore:

1. Learn more about index funds

Index funds are one of the most popular ways to get access to a diversified set of assets in one position. Diversification is known for being lower risk, as all your ‘eggs’ aren’t in one ‘basket’. You can diversify across more than just asset classes – you can also invest across an array of geographies, industries and company sizes.

Not only do index funds offer broad exposure, but they’re also considered a lower-cost alternative to investing in several stocks, bonds, etc individually. Note that all investments carry risk, and past performance doesn’t guarantee future results.

2. Identify the index you want to track

Once you’ve decided that you’d like to invest in index funds, it’s time to identify the type of index you’re interested in. Below are some examples of funds and what they track:

You don’t have to invest in a single type of index fund; you can diversify even further. For example, allocating 50% of your investment to bond index funds, and 50% to international index funds.

3. Pick the fund you want to buy

Whichever type of index fund you prefer, we have thousands of markets to choose from, including ETFs, REITs, ETCs and investment trusts.

Exchange traded funds (ETFs)

ETFs track the performance of an underlying asset or group of assets. We have an  ETF screener, where you can choose the ETF that’s right for you. Use our screener to filter through global ETFs by asset class, country, performance and more.

You can decide between some of the world’s biggest providers, including:

• iShares – the leading ETF provider, with more than $2 trillion in assets under management

• Vanguard – offers a variety of ETFs, covering US and international stock and bond markets, as well as industry-specific sectors

• Invesco – offers a wide range of specialist ETFs, covering  commodities,  forex, fixed income, and equities

Real estate investment trusts (REITs)

REITs work in the same way as mutual funds, with several private investors contributing their own capital to create a single pool of funds. These funds are used to build a portfolio of properties, and the income is almost wholly distributed among its shareholders on a regular basis. 

Exchange traded commodities (ETCs)

ETCs are bought and sold on-exchange; they give you exposure to a basket of commodities in a single position. Commodities are material assets like oil, gas, livestock and wheat. Because ETCs track the underlying price of the commodity, their price will be affected by anything that moves the price of the commodity itself.

Investment trusts

An investment trust is a pool of investor funds used to buy financial assets. If you invest in such a fund, your capital is your own, but you don’t make the investment decisions yourself – the fund manager does. 

4. Open an investment account

Our IG One app will enable you to open an investment account in just a few minutes. Once our app launches, you’ll be able to trade ETFs across 6 global markets. Join our waitlist today and we’ll let you know when the app is available.

 5. Buy shares in the index fund and open your position

Once you have an IG One account when the app is available and you’ve decided on the fund you want to invest in, follow these steps:

1. Log into your account

2. Fund your account

3. Search for the fund you’re looking for eg UCITS FTSE 100

4. Select your position size

5. Review the cost breakdown

6. Confirm your order

Examples of index funds

We have a wide variety of index funds to choose from, including thousands of ETFs as well as a big selection of REITs, ETCs and investment trusts. Some examples are:

• Vanguard FTSE 100 UCITS ETF

• Invesco QQQ Trust

• iShares Core MSCI EAFE ETF

• SPDR Dow Jones REIT ETF

• WisdomTree Brent Crude Oil ETC

• Invesco Physical Gold ETC

• WisdomTree Wheat ETC 

• BlackRock Income & Growth Investment Trust

Advantages and disadvantages of index funds

Index funds summed up

• Index funds are investments like ETFs, REITs and ETCs that passively track the performance of a benchmark index or indices, enabling access to a diversified set of assets in one position 

There are four main types of funds: 

• On-exchange, passively managed funds 
• On-exchange, actively managed funds 
• Off-exchange, passively managed funds 
• Off-exchange, actively managed funds 
• Investing in index funds in Singapore requires an investment account. You can apply to open an account with us through our IG One account once our app is available. Join our IG One waitlist and we’ll let you know when the app is available. 
• Some benefits of investing in index funds are diversification and lower fees 
• Disadvantages of investing in index funds include no control over fund composition, not outperforming the market, and lower return potential