How to Buy ETFs in Australia in 2024

Exchange-traded funds (ETFs) have posted explosive growth in recent years. In this guide, we’ll show you how to buy ETFs in Australia. ETFs are a pool of assets, such as stocks from the same sector, the members of an index, or bonds and other instruments. They are similar to mutual funds, but unlike those, they trade on a stock exchange like a typical stock. These investment vehicles allow investors to gain exposure to a wider collection of sectors and securities without having to buy lots of different securities to achieve the same level of diversification.

Australian investors are increasingly turning to ETFs for their long-term investments. ETFs’ combination of lower costs, diversification, flexibility, transparency, and product variety has made them an attractive investment choice for many investors.

A recent report by Stockspot projects Australian ETFs will reach $230 billion in assets under management (AUM) by the end of this year. Meanwhile, data by professional services firm EY Australia predicts that AUM number will rise to $900 billion over the next decade. The rise in ETFs is also being pushed by financial advisers, who are adding them to their clients’ portfolios because of their low cost, transparency and diversification. Research shows that ETFs, particularly those that are attached to index funds, have outperformed actively managed funds and stock picking.

There are plenty of platforms available in Australia that offer ETFs. In this guide, we examine and compare seven of the best.

How to purchase ETFs in Australia: Your step-by-step guide

• Choose a broker where you can buy and sell ETFs
• Open an account
• Research ETFs
• Place an order
• Monitor and manage your ETFs

A detailed look at the steps of buying ETFs in Australia

Let’s break down how each of those steps work:

Choose a broker to get access to a selection of ETFs

There are more options than ever in choosing a broker to buy ETFs in Australia. There are online brokers whose platforms frequently have low fees and full-service brokers, who typically charge higher fees but provide more personal service. For a simplified process, you can use Australian robo-advisors, too, which offer pre-set portfolios that are mostly based on ETFs.

The fee structure varies widely by broker, so you need to investigate what trading costs brokers charge, what minimum deposit they require, whether they allow you to buy ETFs directly, thus owning the underlying asset, or only allow you to buy ETFs as contracts for difference (CFD), where you would merely trade on an ETF’s price.

It’s important to choose a broker that fits your trading style, whether that means frequent buys or less-frequent purchases and what your time-frame is regarding the investment.

Open an account with your chosen broker

To open an account, you’ll need to provide your personal information, including identification, proof of address and tax file number (TFN). You also may be required to disclose your financial situation, including income, net worth, and investment experience.

Fund your account at your broker

Depending on the brokerage, the amount needed to fund your account and begin trading may vary:

Research ETFs that best suit your requirements

Depending on what ETFs your broker offers, you’ll need to know your investment goals, and risk tolerance to look at your investment objectives and identify suitable ETFs. There are plenty of ETF research tools that the ETFs and brokers provide. Some of the factors to consider are an ETF’s expense ratio, tracking errors and what its invested assets are. Some brokers offer ETFs that incorporate the largest Australian stocks, and some of them will specialise in stocks in various sectors, such as Australian gold stocks or dividend stocks traded on the ASX.

Your broker is likely to have some kind of an ETF screener tool, such as below, where you can set your requirement make your selection from the ones that best fit those.

If you are looking at specialised ETFs. If that’s important for you, you are also likely to find an ETF that aligns with your own socially or environmentally conscious goals. You’ll also want to consider whether the purchase will help you diversify your portfolio, helping to hedge your overall investments against risk.

One way to compare ETFs is by looking at their Net Asset Value (NAV) or Indicative Net Asset Value (iNAV). The NAV is the value of an ETF’s assets minus its liabilities, expressed as the value per share. The iNAV is an estimate of the ETF’s value throughout the trading day, based on the value of its underlying assets. It gives investors a reference point to understand if they’re buying or selling shares at a fair price.

Place your order with your broker

Choose an ETF or several ETFs that you want to invest in. You’ll need to specify the number of units you want to buy and then execute the order through your brokerage platform. You’ll also likely need to choose between several different types of orders:

Market Order: The ETF will be purchased at the best available price at the time of execution.

Limit Order: Set a maximum price you’re willing to pay. The order will only be executed if the ETF’s price falls below your limit.

Stop Order: Place a stop order to sell your ETF if its price falls to a certain level. This can be used to protect against losses.

Monitor and manage your ETF investments

• Regularly review: Check your ETF’s performance and compare it to its benchmark or similar ETFs.
• Rebalance: Periodically rebalance your portfolio to maintain your desired asset allocation.
• Consider Tax Implications: Be aware of potential tax implications, especially when selling ETFs.
• Cost Efficiency: Ensure the ETF’s expense ratio remains competitive, as higher costs can erode returns.
• Performance Alignment: Measure how closely the ETF’s returns track its underlying index. A lower tracking error indicates better performance alignment.
• Market Conditions: Consider how the ETF’s underlying assets are affected by economic factors, such as interest rates, inflation, and geopolitical events.
• Compliance: Stay informed about any regulatory changes that could impact the ETF’s performance or operations.

Comparing the top Australian brokers that offer ETFs

Platform	Fees	Account minimum	ETFs available to trade
Vantage Markets	Start at USD $1.50 per lot	AUD$50	57
Pepperstone	$0.02 (USD) commission per share, per trade, plus spreads	None	More than 100
eToro AU	None on ETF trades	US $50	More than 650
Avatrade	No commission, but spreads apply	AUD$100	59
Webull	No commission	None	More than 3,300
Stake	AUD $3 per Australian ETF trade AUD $10 per US ETF trade	AUD$50	More than 1,000 US ETFs, plus more than 200 on the ASX
CommSec	Brokerage fees start at AUD $5 per trade	$500	More than 190 Australian ETFs

What are ETFs?

ETFs are investment vehicles that bundle various assets, such as stocks, bonds, or a mix of both. Think of them as baskets of investments. Unlike mutual funds, ETFs trade on stock exchanges, making them more accessible and flexible.

Some of the key benefits of ETFs is they have lower fees than mutual funds, they offer tax advantages, including reduced capital gains distributions, they can help investors more easily diversify their portfolios and reduce the guesswork and legwork needed to balance your holdings.

Why invest in ETFs?

ETFs offer investors several advantages. They allow you to invest in a variety of assets with just one fund, which helps you manage risk by spreading your investments across different holdings. ETFs are generally low-cost, especially passively managed ones, which can cost as little as a few dollars per year for every $10,000 invested. Passively managed ETFs often outperform actively managed ones.

The success of an individual ETF hinges on the scope of assets it owns, such as stocks, bonds, and other investments. If these assets appreciate, the ETF will also rise in value. Conversely, if the assets decline, the ETF will follow suit. The ETF’s performance is essentially a weighted average of the returns of its holdings.

The pros and cons of investing in ETFs for Australians

ETFs are seen as great vehicles for everyday investors because they can take the guesswork out of investing, provide portfolio diversity, and they are less expensive than professionally managed portfolios. 

Some of the biggest benefits of investing in ETFs:

• Lower Costs: ETFs generally have lower fees compared to mutual funds.
• Tax Efficiency: They often offer tax advantages, such as reduced capital gains distributions.
• Diverse Options: ETFs cover a wide range of sectors and investment strategies, from technology to emerging markets.
• Reduced Guesswork: ETFs can help you diversify your portfolio without the need to pick individual stocks or bonds.

Some of the disadvantages of ETFs:

• Market Risk: ETFs are subject to market risk, meaning their value can fluctuate based on overall market conditions. A downturn in the market can lead to a decline in the value of your ETF holdings.
• Liquidity Risk: While most ETFs are highly liquid, some may have limited trading volume. This can make it difficult to buy or sell shares quickly, especially in large quantities, potentially affecting the price you get.
• Tax Implications: ETFs can generate capital gains or losses when you buy or sell shares. These gains or losses can have tax implications, depending on your tax bracket and holding period.
• Hidden Fees: While ETFs are generally known for their low expense ratios, some may have hidden fees or other charges that can erode returns. It’s important to read the prospectus carefully to understand all the costs associated with an ETF.

How are ETFs taxed in Australia?

In Australia, ETFs are considered tax-efficient investments and can mean lower taxes for Australians than other investments. However, each ETF is different and your own income level and financial situation may change how your ETFs are taxed. A few points on how Australia taxes ETFs:

• Income Distribution: When an ETF generates income (such as dividends or interest), it typically distributes this income to investors. You’ll generally pay income tax on these distributions.  
• Capital Gains: If you sell your ETF units for a profit, you’ll generally pay capital gains tax. However, Australia offers a capital gains tax discount for assets held for more than 12 months.  
• Franking Credits: Many Australian ETFs hold Australian shares that pay franked dividends. Franking credits are a tax credit that can reduce your overall tax liability.  
• ETF Structure: The specific tax treatment of an ETF can vary depending on its underlying structure (e.g.: managed investment trust, unit trust).

Can I buy US ETFs in Australia?

Yes, most brokers in Australia will allow you to buy ETFs that are traded on US stock exchanges. It’s important to note that different brokers may charge additional fees for buying and selling US ETFs and if you’re investing in US-listed ETFs, you may be affected by currency exchange rates and fees.

FAQs on buying ETFs in Australia