Basics of index investing and how to get started

In recent years, index funds have gained immense popularity as investment vehicles. Another option for index investing are ETFs. Both methods are included in OP's selection.

The easiest way to get started with index investing is with index funds. OP offers six index funds that invest in different parts of the world. They cover all the main market areas: the world, North America, Europe, the Nordic countries, Finland and Asia. By investing in OP index funds, OP’s owner-customers earn OP bonuses.

Another index investing method is exchange-traded funds, or ETFs in short. As with index funds, ETFs track a certain index and invest in a basket of various stocks based on said index. ETFs are traded similarly to stocks, which means taking into account factors such as price limits of securities, possible expenses due to exchange rates, and the necessary securities custody. OP has a comprehensive selection of over 700 ETFs.

What is an index?

Index tells you the average return on a commodity in the markets. It tracks general market trends and indicates value change. An index can monitor the development of a certain stock exchange, such as the Helsinki Stock Exchange, or raw material in the markets. As for index funds or ETFs, they track the development of a certain index and invest in commodities or the shares of companies based on the development.

How to get started with index investing?

Due to low fees, index funds and ETFs are well suited for long-term investing. If you have already entered into OP Savings and Investments Agreement, you can start investing in OP index funds right away through OP eServices or OP-mobile. ETF investments also require opening an equity investor’s service package.

To invest in OP index funds every month with an amount of your choice, you can enter into a continuous savings agreement. When you invest regularly, you can spread your investments across several investment vehicles – you diversify efficiently and reduce risk. If systematic investing is not an option for you, you can also make one-time fund subscriptions. The easiest way to invest in ETFs is through one-time investments.

For whom is index investing suitable?

Index investing is a great option, if you plan to invest in the long term, are able to tolerate risk in the equity markets, seek a good rate of return and value the transparency and cost-effectiveness of investing.

If necessary, the saved funds can also be withdrawn quickly for use, but in index investing, it pays to think in the long term. As index funds invest in the equity markets, the recommended investment horizon for OP index funds is at least seven years. The same applies to ETFs. Equity markets have an expected long-term annual return of 6–8%. Due to the high expected return, the funds also carry a higher risk.

If you are hesitant about taking risks, you should start by investing in funds that are designed for savers and that diversify assets across fixed income markets, too. If you want to actively make decisions about your investments, direct equity investment may suit you better.

Costs of index investing

All OP index funds have a management fee of 0.39%. For private customers who are also OP cooperative bank owner-customers, fund units generate OP bonuses at a rate of 0.25%. Subscription and redemption fees range between 0.06–0.10% depending on the product, and are refunded to the fund in full to cover transaction costs.

ETF management fees vary significantly from product to product, mostly between 0.20–0.60%. Trading fees in ETFs are determined as based on the rates of the equity market in question. For example, fees in the German equity market start from 0.20% with a minimum charge of 8 euros. In addition, you need to consider the price of an equity investor’s service package.

Investment advice for OP customers

If you need assistance in getting started with investing or advice on your current investments, we offer free investment advice. Contact us to arrange a meeting of your choice, whether online, over the phone, or in person at our bank branch. Book an appointment by calling our service number at 0100 0500 or contact us online.