Mutual Funds (Unit Trust) 101

There are many options available for individuals when it comes to growing their wealth to reach their financial goals. One of them is mutual funds.

What are mutual funds?

A mutual fund (or unit trust) is made up of money pooled from multiple investors to purchase securities, such as stocks, bonds, and other asset classes, depending on the fund’s investment objective and strategy. It is managed by a team of professional fund managers who decide what and when to buy and sell assets. Investors who subscribe to a mutual fund will be allocated units, which represent a part of the fund’s portfolio holdings.

What are the advantages of investing in mutual funds?

1. Professional Management – A mutual fund is managed by a team of professional money managers who have the expertise, knowledge, and resources to actively buy, sell, and monitor investments for you on a full-time basis. Investors will save the time, energy and weariness involved in the continual research and analysis needed to identify quality investments to form a portfolio.

2. Diversification – A golden rule when it comes to investing is portfolio diversification, which will reduce concentration risk. Traditionally, to achieve a truly diversified portfolio, investors will need to purchase many different stocks or bonds across varying industries, companies, and countries. Buying into a mutual fund provides instant diversification into different investment securities across various geographies and asset classes. This way, concentration risk is lessened, and if one investment within the portfolio decreases in value, another investment may increase, thereby offsetting the losses.

3. Liquidity – Most mutual funds offer daily subscription and redemption on every Dealing Day, providing investors with liquidity to buy and sell their units readily.

4. Affordability – For retail investors, it would be very costly to directly purchase all the individual securities held in a mutual fund, especially after including the commissions. When you subscribe to a mutual fund, you diversify without incurring multiple commission charges. Furthermore, the minimum initial investment for most mutual funds is incredibly affordable, starting from S$1,000. Investors can also buy more units regularly with even smaller installments through a regular savings plan (e.g., S$200 to S$500 per month) which also allows you to perform dollar-cost-averaging. Read more about dollar-cost-averaging here:

5. Wide range of mutual funds available – Mutual funds come in many varieties that are catered to meet different investor goals. There are four main asset classes when it comes to mutual funds:

  • Equity Funds

An equity fund invests mainly in stocks. The typical objective of an equity fund is to seek long-term capital appreciation. These types of funds may concentrate on specific sectors of the market, such as energy, technology, or gold. An equity fund may also employ a specific investment style, such as only investing in growth or value stocks.

  • Fixed Income Funds

A fixed-income fund invests primarily in bonds or other debt instruments. Fixed income funds aim to provide a regular rate of return to investors through paying dividends on a fixed schedule. However, the payment amounts may vary depending on the investment return. Investors can consider this type of fund if their main investment objective is to generate income and preserve capital. There are many types of bond funds available in the market, e.g., investment-grade, high-yield, multi-sector, to name a few.

  • Balanced or Multi-Asset Funds

A balanced fund typically combines bonds and stocks, offering investors immediate diversification across the two asset classes and a balanced approach

to investing. On the other hand, a multi-asset fund offers exposure to a wide range of asset classes, providing a level of diversification that are typically associated with institutional investing. A multi-asset fund can invest in many conventional equities and fixed income strategies, index-tracking funds, alternative investments in addition to financial derivatives. Such diversity allows portfolio managers to potentially balance risk with reward and provide steady, long-term returns for investors, especially in volatile markets.

  • Alternative Funds

Alternative strategies offer greater portfolio diversification by utilizing sophisticated investment vehicles. Alternative funds invest in a diverse range of strategies and asset classes, seeking to deliver risk and return profiles which have lower correlations to traditional asset classes, such as cash, equities, and fixed income. As these strategies are sophisticated and complex, they are usually only available to Accredited or Institutional investors.

How can investors invest in mutual funds?

1. Invest directly through an online investment platform offered by banks or fintech companies licensed by the Monetary Authority of Singapore (MAS). This option typically comes with lower fees as no advisory is involved. Individuals investing through this method will need to make investment decisions and monitor their portfolio on their own accord.

2. Consult a financial adviser. A licensed financial adviser from a financial advisory firm can assist you in determining your financial goals and risk profile before recommending the best approach to achieve your goals. The adviser would also be able to track the performance of your portfolio and suggest adjustments whenever needed. If you do not have a financial adviser currently and would like to look for one, you can reach me at [email protected], and I am happy to recommend a suitable adviser for you.


A mutual fund is a straightforward and cost-effective investment option for investors to grow their wealth towards achieving their financial goals, whether it be for the purchase of a second property, saving for a child’s education, or retirement. There is a broad selection of mutual funds available in the market for your consideration, depending on your investment objectives and risk profile.

Nonetheless, understanding the investment risks related to each investment is crucial before making any investment decisions.

As with any investment, your investment value and dividends may move up or down depending on the market conditions. Additionally, if you hold mutual funds that invest in assets denominated in foreign currencies, your investments may also be adversely affected by foreign exchange risk. These are just a few examples of the risks that are associated with mutual fund investments.

You should review the fund’s fact sheet, product highlights sheet, and prospectus to obtain detailed information about the investment risks of a specific fund which you are considering to purchase.

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