Regarding future savings, mutual funds are often considered a great investment option. But is that the case in Singapore? Here, we look at mutual funds and whether they are a good investment choice for Singaporeans.
What are mutual funds?
Mutual funds are investment vehicles that allow investors to pool their money together and invest in various assets, such as stocks, bonds, and money market instruments. Financial institutions such as banks and brokerages usually offer this type of investment.
Why invest in mutual funds?
There are several reasons why you might want to consider investing in mutual funds:
Diversification
Mutual funds offer investors the chance to diversify their portfolios and spread the risks associated with each type of asset.
Professional management
As many mutual funds are professionally managed, investors can enjoy lower fees and better returns than they can on their own.
Convenience
Mutual funds offer a convenient way for investors to invest in several different assets without purchasing and managing each separately. This makes it easy for new or inexperienced investors to build wealth through investments without taking too much risk.
Increased liquidity
A potential downside of investing directly in individual stocks is that you may not be able to sell them quickly or at a reasonable cost if you need cash urgently, such as in an emergency. However, most mutual funds offer high levels of liquidity, meaning that you can sell your units quickly and at a fair price.
Are mutual funds a good investment in Singapore?
Now that we know what mutual funds are and why they might be a good investment choice let’s see whether this is true in Singapore. Here, we focus on two key factors: cost and performance.
Mutual fund fees in Singapore
A wide range of options regarding fees is available for investors in Singapore. However, most mutual funds charge an annual management fee, which covers the costs of managing the fund. This fee can vary from 0.5% to 3% or more per year. In addition, investors must pay for all transactions made through the fund, such as buying and selling stocks or bonds.
Performance of mutual funds vs. ETFs
When it comes to performance, one factor that affects this is whether you choose an open-ended fund (mutual fund) or a closed-ended fund (ETF). The difference lies in how many units there are available for trading. With open-ended funds, the supply of units can change as new investments are made or investors sell off old ones. In comparison, each unit is created equal with closed-ended funds, and only the demand for them will affect their price.
Over the past five years, the average mutual fund has underperformed the average ETF. However, when we only look at actively managed funds, the average mutual fund does outperform the average ETF. This suggests that an active mutual fund may be better than an ETF if you are looking for higher returns. However, it is essential to note that higher risk is associated with operational funds.
In conclusion
While mutual funds may not consistently outperform ETFs, they offer investors a more diversified and convenient option for investing in Singapore. When choosing a mutual fund, it is vital to consider the fees and the performance of the fund against similar funds and the broader market. An actively managed mutual fund may be a good choice for those looking for higher returns with a higher risk. However, an indexed fund may be better for lower fees and less risk. All new traders are advised to contact a reputable online broker in Singapore, such as Saxo Bank; for more information, visit this website.
