ETF or Exchange Traded Fund can simply be defined as mutual fund traded in the Exchange. Just like mutual fund, ETF is a Collective Investment Contract, but similar to shares, its investment unit is listed and traded in the Exchange. Like conventional mutual fund, ETF also uses an Investment Manager and Custodian Bank.
One type of ETF developed in the Indonesia’s Capital Market is the Index Mutual fund, where the underlying index used is the LQ45 index.
The difference between ETF and Open-Ended Mutual Fund:
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FEATURE
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ETF
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OPEN-ENDED
MUTUAL FUND
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Trade
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Traded in the Exchange during the trading hours
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Through Investment Manager or Sales Agent
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Minimum Investment
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None
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Various (depends on each mutual fund)
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Price
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ETF LQ45 follows the trend of LQ45 index and the premium/discount of the bid/offer is adjusted to the market’s order.
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Decided by the Net Asset Value of the mutual fund
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Price Announcement
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Displayed continuously by the Exchange during the trading hours.
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Announced one time by the Investment Manager based on the Net Asset Value’s calculation.
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Market Making
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Almost all ETF has market maker (Liquidity Provider)
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None
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Derivatives Effect
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Several ETF have option or futures on underlying index or ETF itself.
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None
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Strong points of ETF
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No.
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ETF (LQ45 Index)
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1
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Investment Unit can be traded in the IDX (more liquid)
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2
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Subscription & Redemption can only be done by the Participant Dealer and Sponsors
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3
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The chance of redemption error that can influence the Net Asset Value is smaller
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4
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The portfolio of shares is more transparent
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5
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The increasing trend of NAB is following the increasing index of the LQ45 index
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6
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Minimum amount of investment is smaller (1 lot of shares=about Rp 500 thousand)
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