Unit trusts and ETFs both give you a basket of securities. The fundamental difference is how they are structured, how they are priced, and crucially, how much they cost. Over 20-30 years, the fee gap between them is one of the largest determinants of your investment outcome.
What Is a Unit Trust?
A unit trust is a pooled investment fund managed by a professional fund manager. In Singapore, unit trusts are distributed by banks, insurance companies, and financial advisory firms. You buy and redeem units at the end-of-day net asset value (NAV).
Fee structure:
- Sales charge (front-load): 1%-5% of the investment amount charged upfront. On a $10,000 investment at 3% sales charge, $300 is deducted before a single cent is invested.
- Annual management fee: 1%-2% p.a. charged on assets under management, deducted from the fund value continuously.
- Underlying fund expense ratio: Often included in the annual management fee but worth checking.
What Is an ETF?
An Exchange-Traded Fund tracks an index (S&P 500, STI, global bonds) and is listed on an exchange like a stock. You buy and sell intraday at market prices through a brokerage account.
Fee structure:
- Brokerage commission: $2-$10 per trade depending on the platform.
- Total Expense Ratio (TER): 0.05%-0.50% p.a. depending on the ETF. This covers all fund management costs.
- No sales charge.
- No annual management fee beyond the TER.
Fee Comparison
| Fee type | Unit Trust | ETF |
|---|---|---|
| Sales charge | 1%-5% upfront | $2-$10 per trade |
| Annual management fee | 1%-2% p.a. | Included in TER |
| Total Expense Ratio | 0.5%-2% p.a. | 0.05%-0.50% p.a. |
| Total annual cost (approximate) | 1.5%-2.5% p.a. | 0.10%-0.60% p.a. |
What the Fee Gap Costs Over 20 Years
$100,000 invested for 20 years, gross market return of 8% p.a.:
| Vehicle | Annual fee | Net return | Ending value |
|---|---|---|---|
| Unit trust | 2% | 6% | ~$321,000 |
| ETF | 0.3% | 7.7% | ~$444,000 |
| Difference | ~$123,000 |
$123,000 on a $100,000 starting investment. That money did not go to you. It went to the fund manager. This is not unique to Singapore. It is why index investing has grown globally: fees are the most predictable drag on investment returns, and minimising them improves outcomes mechanically.
The Case for Unit Trusts
There are legitimate reasons to use unit trusts:
- Access to active management: Some fund managers outperform the index in specific market segments over certain periods, particularly in less efficient markets (small-cap, emerging markets, niche sectors).
- CPF-approved options: Some unit trusts are on the CPF Investment Scheme (CPFIS) approved list for OA investment. ETF options within CPFIS are more limited.
- SRS investment: Not all SRS platforms offer access to SGX-listed ETFs. Unit trusts are widely available across SRS operators.
- Structured advice: Buying through an adviser or RM comes with guidance on fund selection and regular review.
The Case for ETFs
- Lower fees compounding in your favour over decades.
- Broad diversification in a single trade.
- Transparency: you know exactly what the fund holds and in what proportions.
- Intraday liquidity at market prices.
- Available on platforms like Tiger Brokers, moomoo, Interactive Brokers, Standard Chartered, OCBC.
The Active vs Passive Evidence
S&P's SPIVA reports (Standard & Poor's Index Versus Active) track active fund manager performance against benchmarks over rolling periods. The consistent finding across most markets and timeframes: the majority of actively managed funds underperform their benchmark index after fees over 10-15 year periods. The minority that outperform are difficult to identify in advance and do not reliably persist.
This is not an argument that active management never works. It is an argument that for broad large-cap exposure (US equity, global equity, Singapore equity), index ETFs have historically been a more reliable choice after costs.
Which to Use
For your core long-term portfolio (global equity, bonds, diversified allocation): ETFs have a strong cost advantage. For niche strategies where no liquid ETF exists, or for CPF OA investment where ETF options are limited: unit trusts fill the gap. Review the fee schedule carefully before committing to any fund.
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Start a Conversation* All figures, percentages, and projections referenced in this article are for illustrative purposes only and are based on past performance. Past performance is not indicative of future performance. Actual results will vary depending on individual circumstances, market conditions, and the specific products or strategies selected. This article does not constitute an offer, solicitation, or recommendation to buy or sell any financial product. Please consult a qualified adviser before making any financial decisions.
Want to discuss this topic?
20 minutes. No pitch. I will walk you through your situation and tell you honestly where you stand.
Start a Conversation* All figures, percentages, and projections referenced in this article are for illustrative purposes only and are based on past performance. Past performance is not indicative of future performance. Actual results will vary depending on individual circumstances, market conditions, and the specific products or strategies selected. This article does not constitute an offer, solicitation, or recommendation to buy or sell any financial product. Please consult a qualified adviser before making any financial decisions.