Exchange Traded Funds or (ETFs in short) are a JSE product, which you can trade. To keep it simple, they are a basket of shares measured together, however having said that there are ETFs that have single instruments in them like GOLD.
ETFs are a diversified product and the fees are extremely affordable compared to other investment products. You can buy ETFs for as little as R100 or more and if you buy them via a TAX-FREE investment account, your profits/dividends will be tax-free.
We are going to focus on the baskets of shares as that is what you are allowed to invest in the TAX-FREE accounts.
You might have in the past heard of the name SATRIX that is one of the product providers who have created baskets of shares like the SATRIX40 which is a basket of the TOP40 biggest companies on the JSE. Companies like Standard Bank, Woolworths, Shoprite, Mr Price are in the Top40 group. Instead of buying the companies individually, which is a risker, you are buying the group which diversifies the risk.
How does ETFs/ basket of shares diversify the risk?
Some companies might go up and others might go down. In general, if more companies go up then your investment will increase.
There are many different ETFs to choose from with over 70 ETFs now available through the JSE. Some ETFs are baskets of property companies, dividend-paying companies, bonds, international companies, sector ETFs, and many more.