Mutual funds have become increasingly popular in Singapore as a means of investment due to their potential for higher returns compared to traditional savings accounts, as well as the diversification and professional management they offer. But with an overwhelming variety of mutual funds available in the market, it can be daunting for investors to navigate and understand the different types.
This article will delve into the main types of mutual funds available in Singapore and discuss their benefits. This knowledge will aid investors in making more informed decisions when choosing a suitable mutual fund for their investment goals.
Equity funds, or stock funds, are considered the most common type of mutual fund. They invest in stocks and aim for long-term capital appreciation. It is achieved by pooling money from multiple investors and investing in a diverse portfolio of equity securities.
One significant benefit of equity funds is their potential for high returns. As equities have historically outperformed other asset classes over the long term, equity funds allow investors to earn relatively higher returns. However, it is essential to note that equity funds are also associated with higher risk due to their exposure to stock market fluctuations.
Equity funds typically have lower fees compared to actively managed mutual funds, which makes them an attractive option for cost-conscious investors because they don’t require active management. They also offer investors the benefit of diversification as their portfolio consists of various stocks from different industries and companies.
For Singaporean investors looking to invest in top-rated mutual funds, equity funds such as the Nikko AM Singapore STI ETF and ABF Singapore Bond Index Fund are worth considering. Both these funds have consistently delivered good returns to investors over the years and are managed by reputable fund management companies.
Fixed income funds
Fixed-income funds, commonly called bond funds, allocate investments in a diversified portfolio of fixed-income securities. These securities encompass a range of options, including government bonds, corporate bonds, and mortgage-backed securities. The main objective of these funds is to generate regular income for investors.
One significant benefit of fixed-income funds is the stability they offer. As these funds invest in fixed-income securities with a predetermined interest rate, they are less volatile than equity funds. It makes them an attractive option for investors prioritising stability and steady income over high returns.
Another advantage of fixed-income funds is their potential for tax savings. In Singapore, bond gains are not subject to capital gains tax, making these funds a tax-efficient investment option. Additionally, these funds allow investors to diversify their portfolios and reduce overall risk.
For Singaporean investors looking for top-rated mutual funds in this category, the LionGlobal SGD Money Market Fund and ABF Singapore Bond Index Fund are excellent options. Both these funds have consistently delivered stable returns over the years and are managed by reputable fund management companies.
Money market funds
Money market funds invest in highly liquid, low-risk securities such as government bonds, short-term corporate debt, and cash equivalents. The primary objective of these funds is to provide investors with a safe place to park their cash while earning a modest return.
One significant benefit of money market funds is their high liquidity. As these funds invest in short-term securities, they can be easily converted into cash when needed. It makes them an attractive option for investors prioritising easy access to their funds.
Another advantage of money market funds is the low risk associated with them. These funds are subject to strict regulations and invest in highly rated securities, making them a safe investment option for risk-averse investors.
For Singaporean investors looking for top-rated mutual funds in this category, the UOB Income Builder Fund and LionGlobal SGD Enhanced Liquidity Fund are worth considering. Both these funds have consistently delivered stable returns over the years and are managed by reputable fund management companies.
Index funds aim to replicate the performance of a specific market index, such as the Straits Times Index (STI). These funds invest in the same securities and proportion as their respective indexes. The main objective of index funds is to provide investors with market returns at a lower cost than actively managed funds.
One significant benefit of index funds is their low fees. As these funds do not require active management, they have significantly lower expenses than actively managed funds, making them an attractive option for cost-conscious investors.
Another advantage of index funds is their potential for diversification. By investing in a range of securities within a particular index, these funds offer investors the opportunity to spread their risk across different companies and industries.
For Singaporean investors looking for top-rated mutual funds in this category, the SPDR STI ETF and Lion Global Infinity US 500 Stock Index Fund are worth considering. Both these funds have consistently delivered returns that closely track their respective indexes and are managed by reputable fund management companies.