Investing always gets hold of Singaporeans’ interest since they tend to value finding alternative ways to earn more and save more. While this is proven by Folklore of Finance research when Singaporeans topped the financial literacy test, only 5 percent of investing Singaporeans genuinely believe that they are prepared to achieve their investments goals.
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According to the same research, Singaporeans often give credit only to themselves when it comes to successful investments. The 66% of investors claim that their best investments are only due to their own decision call. This only reflects that most investors do not value the importance of soliciting professional advice nor getting further education on investing. Since there is very high level of pride, they are usually afraid to ask questions about things which seems to be a common knowledge among other investors.
If you usually ride the MRT, there is a high chance you have encountered sleek looking financial advisors trying to sell mutual funds. Mutual funds are thought by many to be synonymous with investments, but do you really know what it actually means and how it actually works? Since most Singaporeans will not admit that mutual funds puzzle them, here are the basic things you must know.
Mutual Fund is a Portfolio
A portfolio is a collection or grouping of financial assets which can be bonds, stocks, funds counterparts, and cash equivalents. Investors keep their own portfolios which includes Risk Tolerance or the level of returns variability the investor is willing to withstand and the investing objectives. Mutual fund itself is a portfolio of assets, however, unlike personal portfolios it contains collective investments involving up to hundreds of people. This gives the small investors and access to financial assets managed by professional fund managers.
Though this involves a lot of people, each one has an equal proportion of gain or loss. They can access the portfolio and see the investment objectives which ideally should be matched with its prospectus. Funds have the obligation to declare information which may affect the decisions of the investors.
The mutual fund units can be purchased at the fund’s latest Net Asset Value (NAV). NAV is calculated through dividing the total value of the securities in the whole portfolio by the total amount of the outstanding shares. Investors cannot just sell their units at their whims as there are usually rules on the quantity of units to be sold and when they can sell these.
Why do you usually hear about mutual funds and why are they aggressively advertised? It seems there is a rave of mutual funds advertisements these days mainly because you can make lots of money with it. If a fund manager is entitled for a 1% of the portfolio’s assets a year, it may not seem to be that big. However, if the assets totaled to S$40 million a year, then S$400,000 will go to the funds manager. Another reason why it seems to capture the interest of many is the usual behavior of Singaporeans when thinking about retirement. Of course, everyone wants to secure a retirement at ease or even better: an early retirement with least financial worries.
Which Mutual Fund Should You Get?
There can be various lists of top mutual funds existing on the net, however you should be mindful of how you are going to choose the one to invest in. Do not just invest on the first mutual fund you encounter, it is better to research on its annualised returns over a 10 year period. While there is a fund manager who holds the mutual funds well, that person may not stay there forever. The person managing the fund can be changed in a few years’ time, thus the performance of the assets in the market may easily change. It is better to see its performance for a period of ten years to give you a more realistic idea on how it is going to fare in the future.
Not all mutual funds will show you their comparable rate of return, it is better to ask for its Total Expense Ratio (TER). TER is the amount of money you are actually paying for the management and marketing of the mutual fund. If the fund returns is at 6%, yet the TER is as high as 3%, then you gain 3%. Various mutual funds have different TER fees.
Mutual Fund Eligibility
Monetary Authority of Singapore (MAS) strictly monitors Collective Investment Schemes (CIS). When choosing a mutual fund, check the list licensed by MAS. This only ensures you that yopur investment is going to a legitimate product which is not blacklisted, however, this does not ensure that this is a quality mutual fund that will yield high returns.
No matter how believable and promising a mutual fund, yet it is unregulated, then your investments are not secured and it will be hard to go after the responsible people. It is better to talk with a financial advisor to assure diversification. Some investors buy the same assets just because they don’t research well as some share go in different names, yet from the same company.
Reselling Mutual Fund
Reselling mutual funds may have certain guidelines, to avoid incurring penalties check the mutual fund regulations concerning to whom can you sell certain units. While mutual funds can be a great investment to save up for the future, it may also damage your finances if you are not careful. If you do not understand the product, it is best not to buy it.
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