When you invest your money, it is beneficial to invest in various assets. This could be stocks and shares or bonds. It could even be properties. However, one investment vehicle that may offer you higher returns than other asset classes is mutual funds.
What are mutual funds?
Mutual funds are managed pools of securities that can be bought and sold on the stock market. Such securities include stocks and bonds from different companies across the globe. The investments that go into a pool must be managed by someone with expertise in identifying individual investments at their actual value. There are thousands of different funds available on the Singapore exchange, ranging in size from hundreds of millions down to just a few thousand dollars per fund.
The number one thing you need to understand about mutual funds is that they are made up of many different stocks or bonds. As such, when you choose your particular fund, you need to keep track of its entire history because it might not perform according to your expectations at all times. It usually takes some digging on Internet databases before you finally decide.
Another difference is that there are different classes of mutual funds, and they can be traded differently. Only a few financial institutions in Singapore allow you to trade these funds, so sometimes, it pays to find out more before deciding on your purchase or sale order.
What to watch out for when buying mutual funds in Singapore
As with all investments, you need to watch out for scammers and con artists who might not give you what you deserve. There have been reports of people losing their life savings to such schemes, and I don’t want anyone else going through that experience here as well. Specific measures like buying from reputable companies and trading within legal limits (and even using legal advisors)are probably ways to keep yourself out of trouble.
The benefits of investing in mutual funds n Singapore
Mutual funds can be beneficial in a variety of ways. They tend to offer higher returns than investments such as bank deposits and fixed interest stocks. At the same time, they carry less risk than other investment types, such as individual company shares. This is because of their diversity and spread across various companies and sectors within different economies. Furthermore, the costs of running mutual funds are shared between all fund members, making it possible for individuals to get diversified exposure at meager costs if enough fellow investors participate.
The risks associated with investing in mutual funds in Singapore
Investing in mutual funds has some risks attached. The most prominent being that the investor may lose money from investing
Market risk
As the market is volatile and unpredictable, investors can see a loss if their investments are not chosen correctly.
Product risk
Certain mutual funds can invest in products that go down significantly in value
Operational risk
Where a fund manager may misplace your investment, this type of risk is usually mitigated by choosing a well-known company to manage your investment for you.
For Singaporeans to minimise their risks when investing in mutual funds, experts recommend that they ensure they choose one with a good track record and that they diversify their holdings.
Conclusion
We suggest that you not try investing in mutual funds until you have at least a few years of life experience under your belt because the real world keeps changing so fast it might be better to understand things first before diving headlong into this area. The good news is there are plenty of guides explaining what these funds are about and how they work online if you know where to look for them or ask around. We recommend using an experienced and reputable online broker from Saxo Bank before trading in mutual funds.
