Mutual Funds Singapore 2019 – How You Make Money
For average Singaporeans, one safer way of growing money is investing in mutual funds. Investing in mutual funds Singapore is like buying a share of goldmine holdings. Singapore is going places as an investment hub and the Global Times highlights that this country will overtake Switzerland. It’s financial skyrocketing owes to its robust financial markets.
How you get started depends on your financial goals. Any investment begins before any physical money-commitment. Investment is a process determined by goals. You may have specific goals like saving for retirement or general purpose goal like strengthening your financial security.
A crucial consideration while setting your financial goals is your time horizon. Are you investing for a year, five years or ten years? Thus, a goal will help you to know the right kind of investment, e.g. the kind of mutual fund and the amount required to start.
What Are Mutual Funds?
A mutual fund is a managed portfolio of stocks or/and bonds, cash and other assets. It is a holding pooled from different individuals or group of investors. This class of investment enables you to own stocks or the underlying assets without actively monitoring them. This is because a fund manager handles the fund on your behalf.
Investing in mutual funds in Singapore is safer than ever before. Before undertaking the purchase of mutual funds, an investor must sit down with a financial advisor to understand and assess the risk. This is a requirement by the Monetary Authority of Singapore (MAS). As the saying goes, “Knowledge is power.” Thus, information from a financial advisor empowers you to take a calculated risk. So, the chances of suffering a loss are slim.
What is Your Investment Goal?
As earlier highlighted, goal of your investment is the initial consideration to make. The reason is that there are thousands of mutual funds available and they all cater to different goals. For instance, an equity fund holds stocks only, and this makes the fund useful for long-term investment. Other funds hold large numbers of bonds and other liquid assets thus making them suitable for short-term investments.
You may want to invest in either helping your children study abroad, buy a home or to retire well. There are different mutual funds for all these needs. The least time horizon for mutual funds is five years.
You are highly eager to know how to make money from mutual funds, right? You need to know a few things like the costs involved. Recently, these funds have gained a popularity that stems from their profitability to fund managers and financial advisors selling them. This essentially means that various costs are involved and you only take home the net after all costs.
Costs Associated with Mutual Funds
The Load Fees
Loading refers to the way you pay the fund, and there are fees involved. You can either pay an up-front payment or a lump sum at the end of the investment horizon. However, there are funds with little or no load fee. It is advisable to invest in mutual funds with no load fee as these fees eat into your end returns.
Let’s check this illustrative example. An investor invests S$60,000 in a fund with 3% front-loading. His or her initial investment changes to S$(60,000-1,800) =S$58,200. If the fund gives a return of 3% per annum, in a ten years horizon, a full investment yields S$(60,000*3%)*10= S$18,000. But paying the load fees will make you invest S$58,200 and earn a return of S$17,460 over a similar time period.
This difference can grow will more investment; therefore, it is advisable to avoid mutual funds with load fees.
Total Expense Ratio
The Total Expense Ratio (TER) includes distribution costs, management fees, and other fees to run the fund. The higher the TER, the lower the returns. If TER is at 3% while the fund return is 5%, this makes you get a profit of the 2% balance. One way to check a fund’s performance is to check it TER. This is something you can learn from any salesperson in SGX. It’s worthwhile to say, it is better to invest in a fund with a lower return if it’s TER is the lowest.
If you pull out your investment before the stipulated time, some fees apply to most of the mutual funds. They charge steep cashing-out fees usually to discourage investors from pulling out before maturity. It should be clear to you of any fees when you may need emergency cash. Cashing-out fees can reduce your returns significantly.
The load fees, TER and Cashing-out fees are the most significant costs to help choose between available mutual funds. Minimizing these costs means getting higher returns.
What Guarantees Good Future Results?
Don’t be blinded by the high current performance many advisors will mention to you. Present high performance may not be a guarantee of good performance in the future. What you should ask is the fund performance over the last ten years. This also warns against rushing into new funds. You had better be sure than sorry. Past performance provides a proven track record.
A Mutual Fund Ability to Beat the Market
Most mutual funds measure their performance against some benchmarks. For instance, a fund may gauge its performance against the Straits Times Index (STI). Sure, it’s okay for a fund to assess how good or bad it’s performing, but an investor should not worry much about this. Many of the mutual funds do not usually beat the market. The below data as of 10th September 2018 illustrates.
Nevertheless, mutual funds beat other forms of investing like fixed deposits.
It is clear that you can determine the path through which you earn good returns from mutual fund investment. It is an investment vehicle worth attention, particularly for risk-averse investors. There are considerable advantages involved. Apart from professional management, you achieve diversification than would be the case if you invested in individual stocks.