Ready to make your money work smarter, not harder? Mutual funds offer a gateway to wealth building by pooling resources to create diversified, professionally managed portfolios. They provide a simple yet effective way to invest in a mix of stocks, bonds, and other securities, catering to various financial goals and risk appetites.
With their accessibility and potential for steady growth, mutual funds have become a popular choice for investors seeking long-term wealth creation. They combine expert management with diversification, reducing risk while maximizing opportunities.
This article delves into the fundamentals of mutual funds, exploring how they work, their different types, and their role in wealth building. By the end, you’ll gain practical insights to help you select and invest in mutual funds that align with your financial aspirations.
What is a Mutual Fund?
A fund consists of money from many investors to purchase stocks, bonds or other securities (known as assets). Investors buy mutual funds through brokers who charge fees for purchasing and selling the fund’s shares. A portfolio will then be created with different types of available funds that fit the investor’s individual needs. As well as professional management there may also be an active secondary market in which investors can buy or sell their holdings at any time.
Mutual funds are good for people who don’t have so much money. A mutual fund is when you get to become a part-owner of companies without spending all the money buying them yourself. You can then invest your money in this company, and if they do well, you will get more of their profit.
- If you would like to save for the future (such as retirement), you will need to plan for specific investments that will grow your money, yet still be reliable.
- However if you are looking for short-term gains, it would be best to look towards riskier funds.
- With the pooling of many individuals’ money together at once there are also economies of scale involved where the fees associated with mutual funds can be less than what they would be if an individual were trying to invest in all these assets by themselves.
- If you’re not sure how to get started, don’t worry. Mutual fund companies have people who can help you choose the right one for your needs and will walk you through the entire process.
Benefits of Investing in Mutual Funds
Investing in mutual funds comes with a range of benefits that make them an attractive choice for both novice and experienced investors. Let’s explore why mutual funds are widely recommended as a powerful tool for wealth building.
- Professional Management by Experts: According to an article by Standard Chartered Bank, one of the biggest advantages of mutual funds is they are managed by professionals. Skilled fund managers handle market analysis and asset selection, making it ideal for investors with limited time or expertise.
- Diversification to Reduce Risk: According to financial experts, mutual funds spread investments across multiple assets, reducing the impact of poor performance from any single stock or bond.
- Access to Multiple Asset Classes: With minimal capital, investors gain exposure to a wide range of assets like international stocks or bonds. Mutual funds break down these barriers, allowing investors to own a share of a diversified portfolio with relatively small amounts of money.
- Flexibility and Liquidity: Easily buy or sell units anytime, providing freedom to adjust investments as goals or market conditions change.
Risks of Investing in Mutual Funds
While mutual funds offer a range of benefits, it’s important to understand the risks involved before investing. From market fluctuations to management decisions and fees, these factors can impact your returns. Being aware of these risks helps you make informed and confident investment choices.
- Market Risk: Mutual funds are subject to market fluctuations, meaning your investment value can rise or fall depending on market conditions, leading to potential losses.
- Management Risk: The performance of a mutual fund depends heavily on the decisions of the fund manager, and poor management choices can negatively affect returns.
- Fee Structures: Sales charges, management fees, and expense ratios can eat into your returns, especially with high-cost funds, reducing overall profitability.
Types of Mutual Funds in Singapore
Mutual funds in Singapore cater to a variety of investment goals, risk appetites, and time horizons. From growth-focused equity funds to stable bond funds, each type offers unique benefits to investors.
Here’s a breakdown of the most common mutual fund types available in Singapore to help you find the one that aligns with your financial goals.
| Equity Funds | Fixed-Income Funds | Index Funds | Specialty Funds | Balanced Funds | Money Market Funds |
| Moderate to large returns | Provides stability even when stock market crashes | Stable and independent from the stock market | Target-specific investment | Low volatility | Low returns but very stable |
| Passive income | Passive income | Best passive income for beginners | Best passive income for beginners | Passive income without need for detailed research | Generates modest income while preserving capital |
| Involves dividends | Consistent returns | Low maintenance | Above-average returns | Low return of investment but lowest risk | No dividends, focuses on capital preservation |
| Good liquidity | Can be short term or long term | Can start for as low as S$500 | Only a small capital is needed | Only a small capital is needed | Highly liquid, suitable for short-term financial needs |
| Low risk investment | Low interest rates but low risk | Great for retirement plan | Ideal plan if you do not want to invest in blue chip companies | Low-cost and very passive investment | Lowest risk among funds, ideal for conservative investors |
- Equity Funds (Stocks): Focused on investing in stocks, these funds aim for long-term capital growth. They can be further divided by company size (large-cap, mid-cap, or small-cap), investment style (aggressive, value, or income), or geographic focus (domestic or international).
- Bond Funds (Fixed-Income): These funds invest in debt instruments like government or corporate bonds, aiming to provide steady and predictable income. They’re ideal for investors seeking stability, though they carry risks like interest rate fluctuations.
- Balanced Funds: Combining both stocks and bonds, balanced funds offer a mix of growth and income. They’re well-suited for investors who want a moderate level of risk and a diversified portfolio.
- Index Funds: These funds track the performance of a specific market index (e.g., S&P 500 or STI), offering low-cost exposure to a broad market segment. They focus on matching market returns rather than beating them.
- Money Market Funds: These funds invest in short-term, highly liquid debt securities like commercial paper or certificates of deposit. They are considered low-risk and are ideal for preserving capital while generating modest income.
How to Invest in Mutual Funds in Singapore
Investing in mutual funds in Singapore is a straightforward process, but it’s essential to select the right platform and understand your goals before diving in. Whether you choose a bank, an online broker, or another investment method, here’s a step-by-step guide to help you get started:
Choosing a Bank, Broker, or Online Platform
- Banks: Many local banks in Singapore (e.g., DBS, OCBC, UOB) offer access to mutual funds through their investment services. These are convenient options for those who prefer a more traditional route or need face-to-face consultations.
- Online Platforms: Digital brokerages and robo-advisors often provide a user-friendly way to invest in mutual funds. These platforms typically offer lower fees and a wider range of options.
- Investment-Linked Policies (ILPs): Some insurance plans pair coverage with investments in mutual funds. While convenient, ILPs often come with higher fees and limited flexibility, so review the terms carefully.
Assessing Investment Goals and Risk Tolerance
Before investing, evaluate your financial goals:
- Are you looking for long-term growth, steady income, or low-risk capital preservation?
- Consider your risk tolerance. Do you prefer stability, or are you comfortable with higher risks for potentially greater returns?
Step-by-Step Process to Select and Purchase a Mutual Fund
1. Research: Use your chosen bank or online platform to explore available mutual funds. Review key information like fund objectives, past performance, and fee structures.
2. Evaluate Options: Compare funds based on their suitability for your goals and risk profile. Look for those with reasonable fees and a history of steady returns.
3. Open an Account: If using an online platform or bank, set up an investment account. Complete the required forms and provide identification documents.
4. Deposit Funds: Transfer the amount you wish to invest into your account. Most platforms allow you to start with a small capital.
5. Purchase: Select your desired mutual fund and specify the number of units you want to buy. Confirm your purchase to complete the transaction.
6. Monitor and Adjust: Regularly review the performance of your fund. Rebalance or adjust your investments as your goals or market conditions change.
Best Mutual Funds in Singapore
| Fund Name | Fund Type | 1-Year Performance | Risk Appetite | Key Features |
| AB SICAV I – Low Volatility Equity Portfolio AD SGD-H | Equity Fund | 0.2357 | Growth/Aggressive | Focuses on low-volatility equities for stable growth. |
| AB SICAV I – Low Volatility Equity Portfolio A SGD-H | Equity Fund | 0.2355 | Growth/Aggressive | Similar low-volatility strategy for equity growth. |
| LionGlobal All Seasons Fund (Growth) | Balanced Fund | 0.2114 | Growth/Aggressive | Offers diversified growth-focused investments. |
| Schroder Asian Income SGD A DIS | Balanced Fund | 0.1777 | Balanced/Growth/Aggressive | Focuses on income-generating Asian assets. |
| Schroder Asian Income SGD W DIS | Balanced Fund | 0.1776 | Balanced/Growth/Aggressive | A variant of the Asian Income fund with similar returns. |
| FTGF ClearBridge Global Infrastructure Income Fund SGD (M) H+ | Balanced/Infrastructure Fund | 0.1765 | Growth/Aggressive | Targets income from global infrastructure investments. |
| LionGlobal Singapore Trust Fund | Equity Fund | 0.154 | Balanced/Growth | Focuses on securities listed on the Singapore Exchange. |
| Nikko AM Singapore STI ETF (G3B.SI) | Index Fund | 0.298 | Growth/Moderate | Tracks the performance of the Straits Times Index (STI), representing top companies in Singapore. |
Fee Structure of Mutual Funds
Understanding the fees associated with mutual funds is crucial as they directly impact your overall returns. These charges may seem small, but they can compound over time and reduce your earnings significantly. Here’s an overview of common fees and tips to minimize their impact:
Types of Fees in Mutual Funds
1. Sales Charges (Front-End or Back-End Loads): These are commissions paid to brokers or agents when you buy (front-end) or sell (back-end) a mutual fund. For example, a 5% front-end load on a S$10,000 investment means S$$500 goes toward fees, and only S$$9,500 is invested.
2. Management Fees: Charged annually to compensate the fund manager for actively managing the fund. Typically ranges from 1% to 2% of the fund’s assets under management (AUM).
3. Expense Ratios: This includes all operational costs like management fees, administrative costs, and marketing expenses. For example, an expense ratio of 1% means S$10 is deducted annually for every S$1,000 invested in the fund.
How Fees Affect Returns
Fees reduce the effective return on your investment. For instance, if a mutual fund generates an annual return of 8% but has a 2% expense ratio, your actual return is 6%. Over the long term, higher fees compound and can significantly impact the growth of your portfolio. Choosing funds with lower fees can help maximize returns, especially for long-term investments.
Tips to Choose Low-Cost Funds for Better Returns
- Opt for No-Load Funds: These funds have no upfront or back-end sales charges, allowing you to invest the full amount.
- Look for Low Expense Ratios: Index funds and ETFs often have lower expense ratios compared to actively managed funds.
- Consider Passive Funds: Funds that track indices usually have lower management fees since they don’t require active decision-making by fund managers.
- Compare Fees Across Providers: Use online platforms to compare management fees and expense ratios before investing.
- Avoid Frequent Trading: Regular buying and selling can result in high transaction costs, eroding your returns.
- Use Robo-Advisors: These platforms often offer low-cost access to mutual funds with minimal fees.
Where to Buy Mutual Funds in Singapore
Singapore offers a variety of channels to purchase mutual funds, each with its own advantages and considerations. Depending on your investment goals and preferences, you can choose from banks, brokerage firms, or online platforms.
Here’s a breakdown of your options:
1. Banks (OCBC, DBS, UOB)
Many of the major banks in Singapore provide investment services for customers. Within those options are mutual funds. If you find the mutual fund that you like in the bank, you can immediately register and begin your investment.
Pros:
- Convenient for existing bank customers.
- Access to financial advisors for personalized recommendations.
Cons:
- Typically higher fees compared to online platforms.
- Limited selection compared to independent brokerage firms.
2. Brokerage Firms and Financial Institutions
A second way is to ask an agent over the phone or online who’s acting as a middleman between you and the mutual funds company. Suppose for example, some broker firm has been marketing those packages to their clients on behalf of a particular fund company. In that case, the mutual funds company speaks to that broker firm about your purchase and portrays as a middleman between you and that broker firm.
Pros:
- Broader selection of funds compared to banks.
- Competitive fee structures, especially for experienced investors.
Cons:
- Requires more research and a DIY approach for fund selection.
- Less personal advisory support unless you pay for additional services.
3. Online Investment Platforms and Robo-Advisors
Digital platforms like Endowus, StashAway, and Kristal.AI provide mutual fund access with the added benefit of low-cost management and automation.
Pros:
- Low fees and no or minimal sales charges.
- Easy-to-use interfaces and automated portfolio management.
- Access to global funds, often tailored to your financial goals.
Cons:
- Limited human interaction; relies heavily on technology and algorithms.
- May not be ideal for those who prefer a hands-on or advisor-led approach.
Frequently Asked Questions About Mutual Funds
1. How much money do I need to start investing in mutual funds?
The minimum investment amount for mutual funds in Singapore varies depending on the platform and fund provider. Some funds require a minimum of S$1,000 to S$5,000, while others, particularly through online platforms like robo-advisors, allow you to start with as little as S$100. Always check the specific requirements of your chosen fund or platform.
2. Are mutual funds better than ETFs or unit trusts?
The choice between mutual funds, ETFs, and unit trusts depends on your investment goals and preferences.
Mutual funds are actively managed by professionals, making them ideal for long-term investors seeking expert oversight, though they come with higher fees. ETFs, typically passively managed, track indices with lower costs and greater liquidity, appealing to cost-conscious, hands-off investors. Unit trusts, similar to mutual funds, often target specific markets or sectors but usually have higher fees and sales charges.
Mutual funds suit those who want professional management, ETFs are best for low-cost passive investing, and unit trusts offer targeted exposure but at a higher cost. Choose based on your financial needs and risk tolerance
3. Can I lose money investing in mutual funds?
Yes, you can lose money in mutual funds as their value depends on the underlying assets. Market downturns, poor fund management, or specific sector risks can negatively impact returns. However, diversification in mutual funds helps reduce the overall risk compared to investing in single stocks or bonds.
4. What is the difference between unit trusts and mutual funds?
In Singapore, the terms “unit trusts” and “mutual funds” are often used interchangeably, but there are slight differences. Unit trusts are structured as trusts and are more common in the UK and Singapore, while mutual funds are structured as corporations or investment companies and are more prevalent in the US.
Despite these distinctions, both offer pooled investments managed by a fund manager, with minimal differences for Singapore-based investors. It’s important to review the specific features and fees of each product before investing.
Conclusion
Mutual funds are a versatile and accessible investment option for Singaporeans looking to grow their wealth. With a wide range of fund types, platforms, and strategies to choose from, they cater to different financial goals and risk appetites. By understanding the fees, risks, and benefits, you can confidently invest in mutual funds that align with your long-term financial aspirations.
Key takeaways:
- Mutual funds pool investments across various assets, offering diversification that minimizes the impact of poor performance from individual stocks or bonds.
- Investors can start with minimal capital, enjoy professional management, and buy or sell units with ease, making mutual funds a versatile option for wealth building.
- Sales charges, management fees, and expense ratios can erode overall profitability, emphasizing the importance of choosing low-cost funds for better returns.
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