The Secret to Becoming a Millionaire in Singapore with Mutual Funds

Seeing six figures in our bank account is something many of us dream of. But even more than that, we dream of the lifestyle and the opportunities that earning that much cash opens up to us. The cars, the houses, the clothes, but also the holidays, the meals the experiences.

What are mutual funds?

One way in which many people achieve their dream of becoming millionaires is through mutual funds. These are professionally run investment funds that use a pool of money gathered from individuals or groups of investors to purchase a diverse range of stocks, bonds, securities and other assets. The investments are overseen by a fund manager who makes decisions on behalf of all the investors. Usually, each fund invests according to a specific methodology or focuses on a certain country, asset class or a combination of several.

Why invest in mutual funds?

In Singapore, mutual funds are considered to be a safe way to grow your money, particularly amongst the risk-averse. This is because Singapore is in such strong financial health and its growth pattern is very positive. In fact, it’s considered to be the safest time to invest in mutual funds in Singapore. By law, investors must sit down with financial advisors so that the risks are fully understood and assessed. Because the risks are so calculated, the chances of losing money are very low.

How to invest in mutual funds?

Before investing in mutual funds, it is important to establish your goals. Maybe you aren’t aiming to be a millionaire, you just want a stable retirement fund or money to buy a property in five years time. The most important factor here is your deadline. Are you looking to invest your money for five years, ten years or even longer? This will direct you towards the mutual fund that is most suitable for your needs. Note that the longer you have to let your investment mature, the more likely you are to make that million.

Types of mutual funds

There are many mutual funds out there with different goals in mind. The fund’s prospectus will tell you not only their investment style and what they invest in but also their investment goals. For example, choosing an equity fund or stocks fund means that your money will only be invested in stocks: ideal for a long-term investment. Some pay more regular dividends than others, so again be sure to decide what your needs are and check before you invest. Similarly, low risk is a money market fund, these are more short-term investments that focus on government boards, corporate bonds, commercial bills and financial institutions.

Meanwhile, other funds may focus on bonds or liquid assets, making them more suitable for those who want a quicker return on their money and don’t mind a higher risk. Do note, however, that it is not advisable to invest in mutual funds for a period of shorter than five years. Due to market fluctuations, you may not make any money.

Benefits of mutual funds

With so many obvious benefits, it’s clear that mutual funds beat many other forms of investing. Having your portfolio managed for you and the level of diversification on offer mean that you almost always get a great return on your investment. Mutual funds will never outperform the market, because of the money spent on administration, but if you want a hassle-free way to invest – this is certainly the answer.

Cost of mutual funds

Mutual funds are not without their costs. First off, you must pay a load fee when you load your fund. This payment can be made as an up-front payment or a lump sum when your investment matures, say at the end of five years. Some funds have very small load fees and a couple don’t have one at all. The lower the load fee, the more of the profit you stand to keep for yourself. There are also usually annual charges, these are unavoidable so do budget for them.

The Total Expense Ratio is a sum which includes the distribution costs, management fees and any other fees required to run the fund. This amount is deducted from your return, so the higher the Total Expense Ratio, the lower your return will be. Say your Total Expense Ratio is 4% whilst your fund returns at 6%, your profit will be 2%. Overall you are better off investing in a fund with a lower return and a lower Total Expense Ratio than to invest in a high return fund and then get slammed by the Total Expense Ratio.

The Cashing-Out Fee is the price you pay if you withdraw your investment before it matures. High Cashing-Out Fees encourage investors to stay put, so you should avoid withdrawing your funds at all costs and only put money into a fund that you are extremely unlikely to need. We recommend setting aside a separate emergency fund that you can access for free before considering investing in mutual funds.

Choosing a mutual fund

When it comes to choosing between the appropriate funds, be sure to assess performance over the last ten years, rather than just recent performance. This more long-term approach will ensure you have the best chance of seeing a good return on your investment.

Become a millionaire

But the fast way to become a millionaire through mutual funds is by actually selling them. As this market grows and grows, the ones raking in the big cash are the fund managers and financial advisors. Bag yourself a role managing mutual funds and you are sure to see that bank balance skyrocket in no time. All you need is an impeccable financial education, a strong nerve and the ability to mitigate risk.

As always, be sure to see a financial advisor before making any investment decisions.