Different ways to invest in shares

Investing in shares

There are many ways to invest in shares - each has pros and cons. Before you invest, you should understand the benefits and risks of each option and decide which method suits your needs.

Buying individual shares directly

You can buy individual shares through a full service broker, an online trading account or from the company itself when it offers shares through an initial public offering (IPO), or public float.

You have control over the shares you buy and sell. However you must be prepared to put in the time and effort to track their performance and watch the market to make your own buy or sell decisions. For more information, see how to buy and sell shares.

Buying shares via a Listed Investment Company (LIC)

A listed investment company uses money from investors like you to invest in a range of companies and other assets. It pays you dividends from its earnings and hopefully its shares increase in value over time.

LICs often have lower ongoing costs than managed funds but may be less suitable if you are investing small amounts regularly, due to the stock broking fees on each contribution. A LIC's share price may not exactly reflect the value of its investments.

Buying shares via an Exchange Traded Fund (ETF)

An Exchange Traded Fund (ETF) invests in a basket of shares that make up an index, e.g. the ASX200 Index. An ETF allows you to diversify your portfolio without having a large amount of money to invest.

You can buy or sell ETFs just like any other share. They generally have lower ongoing costs than managed funds. But they may be less suitable if you are investing small amounts regularly, due to a stock broking fee on each contribution.

Buying shares via an index managed fund

An index managed fund is a type of managed fund that buys shares to mirror a particular share market index. For example, an Australian shares index fund may invest in a wide range of companies and property trusts listed on the ASX and aim to match the return of the ASX300 index. You gain a diversified portfolio and pay lower management fees than an active managed fund.

Compare fees and performance of different funds.

Managed funds fee calculator

Buying shares via an active managed fund

When you invest in a managed fund, your money is pooled together with those of other investors. A professional fund manager then buys shares and other assets on your behalf and tries to outperform the market. This is a convenient way to buy shares where someone else is responsible for the buy and sell decisions, but watch out for the fees charged by the fund manager.

See managed funds for more information and compare offers with our managed funds calculator.

Buying shares via an employee share scheme

Employee share schemes give employees shares in the company they work for, or the opportunity to buy shares in the company. The shares might be offered without a brokerage fee or at a discount to the market price.

Employee share schemes can be a great way of gaining access to discount shares, however you should carefully read the terms and conditions set out in the offer documents as there may be restrictions on when you can buy, sell and access the shares.

See employee share schemes for more information.

Buying CHESS Depository Interests over shares

CHESS Depository Interests (CDIs) are used to allow shares of foreign companies to be traded on Australian exchange markets. You can buy CDIs on any of the five public exchanges in Australia.

See how to buy and sell shares for more information about the share exchanges.

When you buy CDIs you own shares in the foreign company, but the shares are held by a depository nominee on your behalf.

Pros and cons of CDIs

CDIs can be swapped for foreign shares, and vice-a-versa, at any time. However, if you choose to swap your CDIs for foreign shares, you will not be able to sell them on an Australian exchange.

Generally, if you own foreign shares through CDIs, you will receive the same benefits as other shareholders. This includes entitlements such as dividends and the right to participate in share offers made by the foreign company to its shareholders, or other corporate actions.

However, as a CDI holder:

  • You cannot vote in person at a company meeting unless you are allowed to by the laws of the country where the foreign company is established. However you can direct the depository nominee to vote on your behalf.
  • In some circumstances, you may not be able to vote due to timing or practical difficulties
  • You may have fewer entitlements than if you held the shares directly

For more information about the specific differences between holding CDIs and directly holding shares in the company, read the prospectus or other disclosure documents prepared by the foreign company you wish to invest in.

For more information about CDIs, see the ASX publication Understanding CHESS Depository Interests.

If you'd like to invest in shares, you don't have to buy individual shares directly. However, if you decide to invest using another method make sure you understand the pros and cons of each.

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Last updated: 03 Apr 2018