Mutual funds in Singapore offer excellent opportunities, especially for mid to small-scale investors. They are collective pools comprising various investment options, such as stocks, bonds, and other derivatives, allowing people to invest modest amounts. Let’s explore how it works by investing $5,000 in mutual funds in Singapore.
What are Mutual Funds?
Mutual funds pool participants’ money and invest in stocks, bonds, futures, options, or combinations of various investments, allowing investors access to expertise and diverse investment tools previously available to only high-net-worth investors.
Key features of mutual funds
- Professional management: Investment managers are investing experts working to achieve a mutual fund’s objectives.
- Liquid investments: Shares of mutual funds are exchangeable for cash at net asset value(NAV) determined at the end of a trading day.
- Diversification: A mutual fund diverts risks by investing in many securities.
- Expenses: Fund management companies collect a percentage of fund fees from mutual funds to cover manager fees and administrative costs.
Differences between mutual funds, ETFs, and unit trusts
In Singapore, the terms used for mutual funds and unit trusts are interchangeable, though mutual funds are open-ended pooled investment funds. In contrast, unit trusts are trust deeds established for investors as beneficiaries in other countries.
We will illustrate the distinct features of mutual funds (unit trusts) and ETFs in the following table:
| Features | Mutual funds (Unit trusts) | ETFs (exchange-traded funds) |
|---|---|---|
| Structure | Collected investment schemes pooling money from investors and managed by professional managers | Open-ended investment funds listed on the stock exchange tracking the performance of an underlying index |
| Management style | Actively-managed funds run by professional money managers | Passively-managed style by tracking an index |
| Valuation | Value is determined by the net asset value(NAV), usually at the end of a trading day. | Value is determined by its price listed on a stock exchange. |
| Fees | Higher, ranging from 1-2% per annum and a transaction fee | Lower, 0.5% or lower per annum, and a transaction fee when traded |
| Minimum investment amount | Vary depending on fund requirements | As low as a share |
| Liquidity | Lower | Higher |
| Availability | Traded through banks, financial advisors | Traded through brokerages |
Types of Mutual Funds in Singapore
In Singapore, mutual funds are classified according to investment objectives and asset types as follows:
- Equity funds: Depending on their investment objectives, they focus on long-term capital appreciation, dividends, or both.
- Bond funds: Also called fixed-income funds, bond funds capitalize on regular interest income and capital preservation through investing in government and corporate bonds.
- Balanced funds: These funds invest in equities and bonds, aiming for growth and income and balancing risks and returns by allocating to proportions from both.
- Money market funds: Invest in highly liquid, quality short-term assets, seeking to conserve capital, earn returns, and minimize risks.
Benefits of Investing in Mutual Funds
Investors benefit from investing in mutual funds; the primary advantages are:
- Investing expertise: Mutual funds are run by investment professionals who make informed decisions based on research and analysis.
- Diversification: By investing in numerous securities, mutual funds mitigate the risk of over-concentrating in a few.
- Affordability: Investors can invest as little as several thousand dollars by purchasing units of a mutual fund, leveraging the advantages of diversifying benefits offered. Some mutual fund companies provide automatic investment schemes allowing investors to participate in regular investing activities by deducting money from bank accounts.
Risks of Mutual Fund Investments
Mutual fund investing is not without risks; here are the significant risks likely to incur:
- Market risk: Investment prices fluctuate according to economic and market conditions; therefore, investors may suffer losses when investment markets go south.
- Liquidity risk: Investors could face difficulties in redeeming their investments in a mutual fund if there is a run on the fund, where investors flock to sell their shares to an investment fund.
- Interest rate risk: Investments tend to decrease when interest rates increase, incurring losses to investors.
- Manager performance: Money managers may not outperform the market, reducing returns subpar to objectives.
- Expense ratios: According to research, high costs reduce mutual fund performance, returning less to investors.
How to Choose the Best Mutual Fund
Choosing mutual funds requires a discreet approach to your financial goals, investment horizon, and risk tolerance. Review the following factors to help you select the best mutual fund:
1. Delineate your objectives and investment horizon
You have clear investment goals, such as tuition for children’s education, retirement expenses, business venture, or travel, and a flexible planning scope, such as a range from 5 to 10 years, so you understand what tools, for example, stocks, bonds, or others to work toward your goals.
2. Assess your risk acceptance level
Regularly assess and observe your attitude toward investment risks before and after investing in mutual funds, ensuring your portfolio meets your investment objectives and risk level.
3. Know the mutual funds
- Understand the fund’s investment objectives and risk profile to better align with yours and increase your chance of success.
- Examining the investment manager’s track record and expertise enhances your confidence in the fund’s future performance.
- Scrutinize a fund’s performance against the benchmark to ensure it should not deviate from the goals.
4. Fees
High fund costs erode your returns. You should compare and review a fund’s expense ratio and other expenses for the best and low-cost mutual funds.
5. Consult a financial advisor
Finally, a financial advisor is the last person you should consult for professional advice on choosing the best mutual fund.
Top Mutual Funds in Singapore
Below are five of the best-performing mutual funds in Singapore:
1. Lion Global All Season Equity Fund
- Fund focus: The fund aims to achieve long-term capital appreciation through investing in a diversified portfolio of active funds and ETFs.
- Historical returns: 5-year cumulative return of 38.05%; annualized return of 6.67%
- Fund manager: Lion Global Investors, a subsidiary of OCBC Bank and a leading asset management company with expertise in Asian markets
2. Fullerton SGD income fund
- Fund focus: The fund strives to provide investors with regular income and capital preservation by investing in a diversified portfolio of fixed-income instruments.
- Historical returns: 5-year cumulative return of 3.08%; annualized return of 0.61%; the current yield: 4.96%
- Fund manager: Fullerton Fund Management company with a track record of fixed-income performance
3. Eastspring Investment Unit Trust: Asian Balanced Fund
- Fund focus: The fund invests in a balanced mix of equities and fixed-income securities, striving for income and capital growth.
- Historical returns: 5-year cumulative return of 14.02%; annualized return of 2.66%
- Fund manager: Eastspring Investments, the Asian asset management arm of Prudential plc
4. PineBridge Acorns Asia Balanced Fund SGD
- Fund focus: PineBridge aims to diversify risks and achieve its goals by providing investors with income and capital growth through a mixed portfolio of equities and fixed-income instruments.
- Historical returns: 5-year cumulative return of 17.45%; annualized return of 3.28%
- Fund manager: PineBridge Investments with a global presence and Asia expertise
5. LionGlobal Singapore Trust Fund
- Fund focus: LionGlobal seeks to achieve long-term capital appreciation by investing in the equities of leading corporations listed on the Singapore Stock Exchange, capitalizing on local economic growth and the companies’ potential future growth.
- Historical returns: 5-year cumulative return of 49.2%; annualized return of 8.33%
- Fund manager: LionGlobal Investors Ltd., a wholly-owned subsidiary of OCBC(Overseas Chinese Banking Corporation)
How to Invest in Mutual Funds in Singapore
Investing in mutual funds in Singapore demands rigorous inspection and proper procedures for identifying investors’ requirements and suitable investments. The following factors are a must if you plan on investing in mutual funds:
Assessing your financial needs
A personal financial needs analysis is the first thing you should do before choosing a mutual fund. They include financial objectives, investment horizon, and risk acceptance level. Financial objects allow you to accumulate and fulfill your goals through investing. Then, the investment horizon is when you start accumulating your wealth to draw down your investments. Finally, your attitude toward risk determines how you create your wealth. Successfully integrating the three things increases your chance of achieving your goals.
Know your mutual funds
You should understand your investments thoroughly to avoid mistakes when making investment decisions. As mentioned earlier, understanding a mutual fund’s investment objectives, past performance, fees, and manager’s track record helps you make better-informed decisions.
Choose an investing platform to invest
Selecting an investment platform suitable to your needs is critical to success. In Singapore, banks and brokerages offer the best platforms for investors to begin the first steps in investing.
As required by law, you should undergo a Customer Knowledge Assessment(CKA) before opening an account and begin investing.
Lastly, most financial institutions in Singapore have low or no minimum funding deposits or fees when opening an account, allowing investors to stay flexible in deciding how much to invest.
Some financial institutions offer regular savings plans to start from small amounts to encourage disciplined investing for beginners.
Tips for Successful Mutual Fund Investing
Below are some of the tips to assist you in investing in mutual funds successfully:
1. Know yourself
Like other investing decisions, you should understand why, when, and what: the reason why you invest: retirement purposes, education or home purchase, and others, when the investment horizon is 5, 10, 20, or longer, and what risk you can accept: equities have higher volatility, and potential returns higher, bonds are stable, but returns lower, money market money funds, the lowest risks, however, lower returns.
2. Research
Your next step is to research mutual funds. Once acquainted with your objectives and risk profile, you will study mutual funds that meet your investing requirements. The primary considerations should include a mutual fund’s investment objectives, past performance, risk profile, and fund manager experience.
3. Diversification
Research shows that portfolios with widely diversified securities are less prone to risks than portfolios concentrated with a few securities, based on the same returns from the two portfolios. Diversification reduces the risks of possible losses.
4. Regular review
Regular portfolio monitoring ensures your investment is on track toward the goals. Moreover, timely rebalancing can correct adjustments necessitated by portfolio deviations, assuring that your investments are entirely on course.
FAQs
1. Are mutual funds suitable for beginners?
Mutual funds are suitable for novice investors who are beginning their investing journey and require professional expertise in managing their wealth.
Besides, they can participate in regular savings schemes offered by financial institutions by regularly deducting funds from their bank accounts to create a disciplined investing practice.
Another benefit of regular savings investing is that you can use the cost-of-averaging technique to increase your returns through regular savings by regularly buying up units from mutual funds.
2. How do I withdraw my investments in a mutual fund?
You can withdraw your investments in a mutual fund through fund redemption. Through an online investment account with a bank or financial institution, you place a “Redeem” instruction on the mutual fund you want to sell, in whole or in part. The pricing is the NAV at the end of the trading day you place an order.
It usually takes a few business days for your order to be processed and credited to your bank account.
You may have to pay two charges: a redemption fee, ranging from 1 to 5%, and a platform fee, dependent on the institution.
Wrapped-Up
Mutual fund investing caters to novel and experienced investors, ranging from several hundred to million dollars. Investors should review their financial risk analysis and research mutual funds to meet their risk profile before investing. Talking with a financial advisor is another viable option for beginning to invest.
Key Takeaways:
- Mutual funds primarily comprise equity funds, bond funds, and balanced funds.
- Mutual funds are suitable for novel and advanced investors.
- Financial analysis should be undertaken to identify objectives and conduct risk profiling.
- Conduct thorough research on mutual funds to meet your investment requirements.
- Mutual funds are a mid-to-long-term investment option.
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