Investing in funds is an effective way to diversify your portfolio and gain exposure to different markets and asset classes. Singapore is a thriving financial hub in Southeast Asia and has been for many years. The country’s liberal policies have encouraged foreign investment for decades, and its technologically advanced infrastructure makes it easy for citizens and expats to build their financial future with ease. With a wide range of investment funds available in the country, choosing one that caters to your investment needs and objectives is essential but may be daunting.
In this article, we aim to explore the different types of investment funds in Singapore and how you can participate in trading them. Before we get started, we will also examine what investment funds are in the first place and the factors you should consider before deciding to invest.
What are investment funds?
Investment funds are a type of investment vehicle that pools money from multiple investors to purchase a diversified portfolio of assets such as stocks, bonds, real estate, and commodities. The goal of an investment fund is to generate returns for its investors through the appreciation of these underlying assets and the distribution of income from dividends or interest.
In Singapore, the country’s central bank and financial regulator, the Monetary Authority of Singapore (MAS), regulates all financial services and activities related to investment funds. Their involvement gives investors peace of mind because they maintain a regulatory standard and an investment environment with integrity and transparency.
Considerations before investing in funds
Before investing in any sort of funds, there are several considerations you should make to ensure that you choose the best funds for your goals and risk tolerance. This is especially important if you are new to investing and you are starting from scratch.
Investment funds have different investment objectives such as growth, income, or a combination of both. It’s important to choose a fund that aligns with your investment goals.
Different funds have varying levels of risk depending on the asset allocation and investment strategy. Consider your risk tolerance before investing in funds.
Fees and expenses
Investment funds charge fees and expenses for managing the portfolio. These fees can impact the returns on your investment, so it’s important to compare fees between different funds and select the fee structure most suitable for your circumstances.
Look at the historical performance of the fund to determine how it has performed over time. While past performance doesn’t guarantee future returns, it can provide insight into how the fund has managed in different market conditions.
The fund manager is responsible for managing the portfolio and making investment decisions. Look for a manager with a track record of success and a clear investment strategy.
Finally, investing in a diversified portfolio can help to spread risk and reduce volatility. Look for funds that invest in a range of assets and sectors to diversify your portfolio.
Investment funds in Singapore
Singapore offers a diverse range of investment funds available for investors with different needs. Before you pick one, you should obtain a basic understanding of what each of them is for and whether they can help you meet your financial goals.
1. Unit trusts
Unit trusts are one of the most common types of investment funds in Singapore. Fund managers mange them, and they are made up of a pool of money from various investors. The managers invest this money in a diversified portfolio of stocks, bonds, or other assets. The MAS regulates unit trusts and as a trader, you can purchase a trust through banks, financial institutions, and independent financial advisors.
2. Exchange Traded Funds (ETFs)
Exchange Traded Funds (ETFs) have a lot of similarities with unit trusts, but they trade on stock exchanges like individual stocks and shares. They also have a passive management style, which means they track a specific market index or sector.
ETFs are popular among investors who want to invest in a particular market or sector without having to purchase individual stocks or bonds. They provide easy access to portfolio diversification, and since they are traded in the same manner as stocks and shares, investors find it easy to get on board.
3. Real Estate Investment Trusts (REITs)
Real Estate Investment Trusts (REITs) are funds that invest in real estate properties, such as shopping malls, office buildings, and hotels. They generate income from rental payments and capital gains from the sale of properties.
Investors trade REITs on stock exchanges the same way they trade ETFs, and it is a requirement for REITs to distribute at least 90% of their taxable income to shareholders. This makes it a good choice for investors who would like the potential of regular passive income.
4. Hedge funds
Hedge funds are private investment funds that are open only to accredited investors, so they are not for everybody. Accredited investors include high-net-worth individuals and institutions, and professional fund managers manage them using advanced strategies such as short-selling and derivative trading. These managers also sometimes use high-stakes management strategies that involve the use of leverage.
Hedge funds are less regulated than other types of investment funds, which may be a concern if you have a low risk tolerance.
5. Private equity funds
Finally, private equity funds are investment funds that invest in private companies or assets that are not publicly traded. Professional fund managers once again manage them, and they use a range of strategies, ranging from the use of venture capital, leveraged buyouts, and distressed debt investing, with the goal of generating high returns.
Private equity funds are also available only to accredited investors, which means they are not available to regular retail investors.
How to decide if a fund is suitable for you
Aside from the considerations above, there are a few ways for you to decide if a fund is suitable for you. You can firstly look at the fund’s track record. This is how the fund has performed historically. Even though historical performance is not an accurate indicator of its future performance, it can give you a solid idea of how it has weathered certain market conditions.
You can also look at your own investment strategy and plan and whether it would fit with the fund’s management. For example, if you have a low risk tolerance, you may want to invest in a fund that has a diversified portfolio and has an active manager. If you are someone who has little time to spend on investing, you may also consider a passively managed fund such as an ETF, that can track indices on its own without intervention.
Finally, you should consider if you are eligible for the fund at all. Some funds, such as hedge funds and private equity funds, are open only to accredited investors. If you are not a high-net-worth individual or part of a professional institution that allows you access to these funds, you may not have a chance to participate. Do your research and understand which funds you have access to before you begin investing.
The bottom line
In Singapore, there is a diverse range of investment funds that cater to different investment needs and objectives. As a trader, it is essential that you understand the different types of funds available to choose the ones that best suit your investment goals and risk tolerance. Before investing in any fund, you should also conduct thorough research on the fund and due diligence to assess your own risk tolerance and investment goals. This way, you can make informed decisions that can lead to greater chances of success in investing.