In Singapore, many people, including risk-averse investors, invest in mutual funds as it is one of the safe investment tools. A mutual fund is a managed portfolio of stocks, bonds, cash, and other assets. The funds are pooled from different investors and operated by a fund manager. Though some of the investments are fickle, there are no guarantees that anyone can earn a specific return over any predetermined time. But, if you are looking forward to investing in mutual funds to get the highest return, here are some of the tips to help you achieve that goal.
Keep Mutual Funds Investment Goal
With an investment goal, you can choose the right mutual fund to achieve the highest return. The objective of your investment is the initial consideration before you invest. The reason to set a goal is that there are a large number of mutual funds available in the market catering to different goals. For instance, equity mutual funds only hold stocks. Hence, they are suitable for long-term investments. To get the highest return on investment, try to match your financial goal with the mutual fund’s investment objective.
Choose the Right Type
There are many types of mutual funds available in the Singaporean market. But it is essential to check if the product that you have chosen is regulated by the Monetary Authority of Singapore (MAS). Just remember, the higher the risk, the higher the return. So choose the right mutual funds wisely.
Consider the Costs
Before you choose the right mutual fund, you need to consider the costs that are associated with your investment. Though you might get the returns that you have expected from the specific mutual fund, if you ignore the costs that were associated with it, you might not get the real return in the first place. Here are some of the fees that you need to consider before investing in one.
Load fees
Loading refers to the way you pay the fund. You can either pay from up-front or lump-sum at the end of the investment horizon. There are funds with little or no fees. Therefore, it is advisable to invest in mutual funds with no load fee as they can fail to give you real returns.
Let’s say an investor invests SGD 30,000 in a fund with 3% front-loading, the initial investment changes to SGD 29,100. If the fund gives a return of 3% per annum in ten years horizon, the investment will yield SGD 9000. But the paying load fees will make you invest SGD 29,000 and earn a return of SGD 8730 (SGD 9000 – SGD 9000*3%) over a similar period. The difference can be more with investment value, therefore it advisable to avoid investing in mutual funds with load fees.
Total Expense Ratio (TER)
TER includes distribution costs, management fees, and the fees to run the fund. The higher the TER, the lower the returns. To know the mutual fund’s performance, you need to check the TER. For instance, if you have fun with a return of 5% and TER of 3% and the latter has the return of 3.5 % but a TER of 1%, then the second option will be an appropriate option to get higher returns. Therefore, to get higher returns, it is best to invest in a fund with a lower return if the TER is the most economical.
Cashing-out fees
If you ever want to pull out your investment in the mutual fund before the stipulated time, some fees append with the fund. There are steep cashing-out fees to discourage investors from pulling out the investment before maturity. Cashing-out the investment can affect the returns and block the way to get the highest returns. Therefore, avoid cashing out the investment and look for the cashing-out fees in case of an emergency.
Measure the Funds Performance
Mutual funds have a benchmark index that can help you measure the performance. If the fund has returns below the benchmark, then they are said to have underperformed, and if the funds have returns above the benchmark index, then they have beaten the mark.
There is a common saying that past performance is not an indication of future successes. However, you should not invest in something that has no past proven track records. Look at previous years performance as well before you invest.
So, don’t be blinded by the high performance that many advisors will mention to you. The present performance of the fund will not guarantee you good returns over the next ten years.
Check the Mutual Funds Rules for Cashing Out
Not all mutual funds are accessible to cash-out. Some funds are imposed with steep funds on pulling out the fund before a certain length of time. The reasons for imposing the cashing-out rule is to prevent the investor from cashing out when the times are bad, and they might have the rush to sell or escape the bad investment. This can sink the fund before it has the chance to recover. Therefore, before you invest in mutual funds ensure that you are aware and clear of the cashing out rules and think twice before you lock down your money for long periods.
Mutuals funds are one of the several tools that supplement your retirement income. If you use it in the wrong way, you can have the opposite effect and damage your wealth instead. So, research, track, and invest in the right mutual fund to enjoy the good returns.
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