• Fri. Sep 22nd, 2023

Demystifying Mutual Fund Trading in Singapore: Everything You Need to Know

ByAnn Clifton

Aug 8, 2023 #trading

Mutual funds are popular investment vehicles that offer individuals the opportunity to invest in a diversified portfolio managed by professional fund managers. In Singapore, mutual funds have gained significant traction among investors due to their potential for long-term growth and convenience. However, understanding the ins and outs of mutual fund trading is essential for making informed investment decisions.

This article will demystify mutual fund trading in Singapore, covering everything you need to know to navigate this investment avenue successfully.

Types of mutual funds in Singapore

Mutual funds in Singapore come in various types, each designed to cater to different investment objectives and risk profiles. Equity or stock funds invest primarily in stocks and aim to generate long-term capital appreciation. These funds can focus on specific sectors, regions, or themes. On the other hand, bond funds invest in fixed-income securities such as government and corporate bonds, offering regular income and capital preservation. Balanced funds, as the name suggests, strike a balance between equities and fixed-income securities, aiming to provide both capital appreciation and income generation.

There are specialised mutual funds, including sector funds that focus on specific industries, index funds that track a specific market index, and money market funds that invest in short-term, low-risk instruments. Real estate investment trusts (REITs) are also popular mutual funds in Singapore, allowing investors to participate in the real estate market without directly owning properties. Understanding the different types of mutual funds can help investors align their investment objectives with the appropriate fund category.

Benefits and risks of mutual fund

Investing in mutual funds offers several benefits. First, mutual funds provide diversification by pooling funds from multiple investors and investing in various securities. This diversification helps spread the investment risk and reduces the impact of individual security performance on the overall portfolio. Second, mutual funds are managed by professional fund managers with expertise in selecting and managing investments. This relieves individual investors of the burden of making individual investment decisions.

Mutual funds also provide liquidity, allowing investors to buy or sell fund units at net asset value (NAV) on any business day. This flexibility provides investors with easy access to their funds when needed. Furthermore, mutual funds are regulated by the Monetary Authority of Singapore (MAS), which ensures that funds comply with regulatory standards, offering a layer of investor protection.

It’s important to note that mutual fund investing also carries certain risks. The value of mutual fund units can fluctuate based on market conditions, and returns or capital preservation are not guaranteed. Additionally, investors should be mindful of fees and expenses associated with mutual funds, such as management fees and sales charges. It’s crucial to carefully read the fund prospectus and understand the risks and costs involved before making investment decisions.

How to choose the right mutual fund

Choosing the right mutual fund from a broker such as  Saxo Bank Group is essential for aligning your investment goals and risk tolerance. When choosing a mutual fund, it’s crucial to look at factors such as investment objective, fund performance, risk level, fund manager’s track record, and expense ratio. Determine whether the fund’s investment objective matches your investment goals. For example, if you seek long-term growth, an equity fund may be suitable, while a bond fund may be appropriate if you prioritise income generation and capital preservation.

Assess the fund’s historical performance over different periods to gain insights into its consistency and ability to meet its investment objectives. However, past performance does not guarantee future results, and it’s essential to evaluate the fund’s performance in conjunction with other factors. Evaluate the fund’s risk level by considering factors such as volatility and the underlying assets it invests in.

All things considered

Mutual fund trading in Singapore allows individuals to invest in a diversified portfolio with professional management. By understanding the types of mutual funds available, the benefits and risks associated with mutual fund investing, and the process of selecting and investing in mutual funds, investors can make informed decisions and maximise the potential of their investments.

Remember to conduct thorough research, evaluate your investment goals and risk tolerance, and seek guidance from a financial advisor when needed. With proper knowledge and careful consideration, mutual funds can be valuable for long-term wealth creation in Singapore.