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Checklist Before Every ETF Purchase: 8 Things You Need to Know in Advance
Key takeaways
- ISIN, domicile, and type (accumulating/distributing) are three basic parameters to check every time.
- A TER above 0.5% for a broad index ETF is a warning sign — look for a cheaper alternative.
- A fund size below 100 million EUR increases the risk of closure and a wider spread.
- Overlap with your existing portfolio: a new fund must not significantly duplicate what you already own.
- Run through the checklist even when buying "the same fund" you bought last month — broker configurations change.
The pre-purchase ETF checklist is not a bureaucratic ritual — it is a 5-minute protection against mistakes that can only be corrected at a tax or financial cost.
Core parameters (always check)
- ISIN: is the 12-character identifier correct? Look it up on justETF.com or with the provider.
- Domicile: an Irish or Luxembourg fund for Czech investors = advantage on dividend taxation (15% withholding tax instead of the full 35% for incompatible funds). More in the article on UCITS ETF.
- Type: accumulating or distributing? Accumulating reinvests dividends automatically — suitable for long-term investors.
- TER: for a broad global ETF it should not exceed 0.20%. For an S&P 500 ETF, 0.07–0.15%.
The fund itself
- Fund size: at least 100 million EUR. Below this threshold there is a risk of fund liquidation or worse liquidity.
- Replication: physical (the fund holds actual shares) vs. synthetic (swaps). Physical is more transparent.
- Historical deviation from the index (tracking error): the smaller, the more faithfully the fund tracks the index.
Portfolio context
Check for overlap with what you already own. If you have an All-World ETF and want to add an S&P 500 ETF, you are effectively doubling your exposure to US equities — that may not be a problem, but you should know it. How to build a well-structured portfolio without unnecessary overlaps is described in the first portfolio guide.
FAQ
Why does the domicile of an ETF matter?
Domicile determines how dividends flowing out of the fund are taxed. An Irish or Luxembourg fund benefits from tax treaties and a larger portion of dividends stays in the fund. For Czech investors, Irish domicile is the most efficient.
What is tracking error and where do I find it?
Tracking error is the average annual deviation of the fund's performance from its benchmark index. A low value (below 0.2%) means the fund faithfully tracks the index. You can find it on justETF.com or in the fund's annual report.
How many ETFs are enough to have in a portfolio?
Two or three are sufficient for a globally diversified portfolio. One All-World ETF covers over 3,000 companies. Adding another fund brings value only if you consciously want a different profile — otherwise it just increases complexity.