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Unit Trusts in Singapore – Things to Know Before You Invest

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Clara Lim

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Most common investments in Singapore, (like stocks, bonds, and property) are not difficult to understand once you get past the jargon. When it comes to complex products like a unit trust or mutual fund, however… it’s a different story. And the danger is that you might get sweet-talked into investing in a unit trust without seeing the full picture.

So, before you start buying unit trusts, here’s a guide to how unit trusts work, what kind of costs and returns you can expect, and how to choose the right one.

 

What is a unit trust?

A unit trust (or “mutual fund”, as the wacky Americans call it) is a fund where multiple investors pool their money. A fund manager takes that pool and channels it into a whole bunch of different investments.

Okay, I know. That made absolutely no sense. Let me try to unpack it into 3 main points:

1. A unit trust is a collective investment, not an individual one.

You do not have personal control over the individual components of the investment portfolio. You simply hand over the reins to the a professional fund manager.

This isn’t great for control freaks, but for the rest of us, it may not be a bad thing. You may not have time to monitor stock markets, or the expertise to make informed decisions.

2. Unit trusts lower the risks of investment by diversifying.

In English, this means your fund manager takes your money and buys shares in many different companies. If one flops, the others help mitigate the damage.

Kind of like how (back in the day) we all had both Uber and Grab apps on our phones – so that when Uber has surge pricing you can still book a Grab.

3. Your fund manager is very important… and no, her services are not free.

The fund manager is what makes or breaks a unit trust. Her job is to actively buy and sell assets to try and generate higher returns.

So, whether you make or lose money depends almost completely on how competent your fund manager is. Naturally, you must pay for her services. Fund managers can make up to 2% of the portfolio’s total asset value every year.

 

What fees are involved in unit trusts?

Although you don’t need a lot to start investing – some banks let you start with just $100 a month – unit trusts are ultimately costly to invest in because there are many fees involved.

Here are the fees you might need to pay personally (usually taken as a cut off your investment amount so you don’t feel the pinch):

Fee Description Expected amount
Initial service charge A fee you pay when you buy a fund Up to 5% of your investment
Realisation / redemption fee The amount you pay when you sell the fund Up to 5%, but usually none if you had to pay initial service charge
Switching fee A fee to pay if you decide to switch from one fund to another (under the same fund manager) 1% of your investment
Online sales charge Admin fee for buying a fund online 1% of your investment

That’s not all! There are also overall costs that must be paid to the various parties involved in maintaining the fund. These are usually calculated off the total value of the fund’s assets (net asset value, or NAV).

Fee Description Expected amount
Management fee Your fund manager’s pay cheque 1.5% to 2% of NAV per year
Trustee fee The organisation that safekeeps the various assets in the fund will charge a fee for its custodian services 0.1% to 0.15% of NAV per year
Miscellaneous fees Admin fees, audit fees, etc. Unknown

Guess where that money will come from? You, of course, along with everyone else who bought the unit trust.

But despite all these fees that cut into your returns like crazy, some investors still love unit trusts.

Why?

For one thing, it’s an easy way to invest in certain key markets. Think about the hype around Tencent stock in China or Apple stock in the US. If you want to own shares in these companies to impress chicks, one of your options in Singapore is to go through a unit trust.

It’s also the closest thing you can get to actually hiring your own personal money manager. Investing is very time- and effort-consuming, not to mention fraught with risk. There’s a certain peace of mind when you outsource it to a professional, even if it costs more.

That said, paying a premium does not guarantee higher returns! It’s very hard for even competent fund managers to “beat the market” (i.e. the returns on a generic index fund, like an STI ETF).

 

How do you choose a unit trust?

Unlike simpler forms of investment, like buying Singapore Savings Bonds or shares in your favourite telco company, it’s a little harder to make a decision when it comes to unit trusts.

For a start, there are a gazillion of them out there, and they all have incomprehensible names like “AB SICAV I Low Volatility Eq A SGD H Acc”.

So what do you look out for? Here are some terms you’ll come across when researching the unit trust you’re interested in.

Fund house: This is the investment bank or company that offers this fund. Big names are BlackRock, Aberdeen, Franklin Templeton, etc.

Fund manager: The specific fund manager (e.g. John Doe from JPMorgan) and describes their experience level and expertise.

Fund objective: Unit trusts cater to various investment objectives – whether you want passive income, fast or long-term capital growth, or just to beat inflation.

Investment strategy: Articulates what the fund manager will do with your money to achieve objectives. For example, if it’s meant to provide passive income, the fund manager will focus on high dividend yields.

Geography: Which countries this portfolio focuses on. Country/region-specific unit trusts let you ride on fast-growing or strong economies, while wider coverage funds are more resilient to big geopolitical changes.

Asset allocation: Tells you what sorts of financial products are in the portfolio – stocks, bonds, REITs and so on. Common categories are equity funds (stocks only, higher risk), fixed income funds (bonds only, lower risk) and balanced (mix of the two).

Holdings: What the fund manager is currently investing in. This gives you a better “feel” of the unit trust. For example, a unit trust that invests in China’s biggest tech companies is very different from a more conservative fund that invests in big global brands like Coca-Cola and Unilever.

Performance history: The historical return on investment is published. This is a good place to check if the unit trust pays out regular dividends, and how much you can expect to get.

Unit price: Each unit trust is divided into purchasable units. The price of each unit is based on the total current value of all the assets in the fund which is constantly fluctuating, just like stocks. Think of this as the equivalent of share prices.

Minimum investment: There’s usually a minimum amount (e.g. $1,000) you need to start with, otherwise your request won’t even be entertained.

… And these are only the basics! There are also lots of documents, like the prospectus and annual report, to read. Ugh.

Of course, you can always go down to the bank and ask for professional advice. Better yet, go to a few and get some opinions. Here are the 4 most popular financial institutions you can go to:

 

DBS unit trust

Practically every Singaporean has a DBS/POSB bank account, which is already half the battle won (for DBS, anyway) as you can easily invest in unit trusts through DBS iBanking.

Finding the right unit trust among its 500+ investment fund options is the difficult bit. For beginners, you can narrow it down by filtering by currency (choose SGD to avoid foreign exchange fluctuations) and by risk profile (according to your personal risk appetite).

You can also select Focus Funds, which are investment vehicles selected by  DBS’ in-house fund selection team every quarter. These have been vetted and reviewed by the DBS team. Unfortunately, their reviews are full of investment jargon which isn’t really helpful if you’re not familiar with them.

You can invest either with a lump sum (usually minimum $1,000) or with small monthly amount (e.g. $100 a month).

 

OCBC unit trust

Similar to DBS, OCBC offers unit trust investments with low barriers to entry – you just need to set up an OCBC online banking account or get one opened instantly at an OCBC branch.

You can look at the complete list of OCBC unit trusts here. There’s also a page of OCBC-selected funds, which would certainly help narrow things down, but you still need to know roughly what you want (e.g. which region you want to invest in, which investment bank you’re confident about) to use it.

Also, OCBC also has an email/SMS alert service for unit trusts on your watchlist.

As with DBS, you can start investing with either $1,000 (lump sum) or from $100 a month.

 

UOB unit trust

UOB’s unit trust page is helpfully divided into subcategories (based on geography and asset mix) so you can easily zoom in on the ones that interest you. The 6 categories are:

Category Description
Global Investments distributed across many regions for maximum diversification
Asia Unit trusts focusing on high growth (but riskier) Asian region
US Funds that let you buy into the biggest financial market in the world
Equities Unit trusts made up of stocks for potential capital growth
Fixed income Generally lower risk investments comprising mainly government and corporate bonds
Dividend Unit trusts focusing on regular high dividends but not necessarily capital growth, can be a mix of assets

You can also use the fund selector page to filter by fund house, asset type, geography and investment scheme (e.g. CPFIS, SRS).

Similar to the other local banks, you can invest using a UOB internet banking account. It takes at least $1,000 to start investing. Otherwise, you can opt for a Regular Savings Plan.

By the way, UOB has an asset management arm with its own unit trusts e.g. United Income Focus Trust. But you don’t to buy them through UOB as some other banks also offer them.

 

Phillip unit trust (POEMS)

Apart from the 3 local banks, you might also want to consider investing with POEMS because there are supposedly no fees (platform, sales or switching fees) when you purchase online or “port in” your existing unit trust.

These are only the fees you need to pay personally though – the other collective fund fees, such as your fund manager’s pay cheque, still need to be paid.

Looking for the right investment vehicle with POEMS can be overwhelming because there are over 1,000 unit trusts. They also have a lot more types of funds than the banks, like “alternative investments”, “commodities” and “derivatives”. In that respect, you do need quite a lot of investment knowledge to start.

For beginners, there are some model portfolios for you to peruse, but beware – they’re not exactly for the faint-hearted either.

However, here’s a suggestion: No one will stop you from talking to investment advisors at DBS, UOB or OCBC to assess your needs and identify the best unit trusts for you, and then buying it to through POEMS online.

 

FundSupermart (FSMOne)

Another non-bank platform for investments in Singapore is FundSupermart’s FSMOne, which is exactly what it sounds like: A “supermarket” with a huge variety of unit trusts (close to 1,500!) as well as a ton of ETFs, bonds and stocks to choose from.

The sheer variety of options can be staggering, but there are FundSupermart investment advisors to help you with your decision, so you’re not going in blind. Thereafter, managing your portfolio with FSM MAPS, their “dashboard”, is a simple affair.

Like POEMS, FundSupermart dangles the big old “no fees” carrot (that is, no fees apart from the NAV!) for investing with them. That’s also one of their key selling points – the chance to actually make money instead of having banks eat into your profit.

 

DollarDex by Aviva

An alternative platform that’s solely focused on unit trusts, DollarDex may seem like a much smaller outfit that the rest but it does have some credentials: Its parent company is the insurance firm Aviva, it’s regulated by MAS, and it’s registered as an CPFIS investment broker.

Again, DollarDex focuses on transparent pricing and no extra fees (apart from the NAV of your unit trust) so your profits aren’t eroded by fees.

The user interface is clean and simple, which is great for beginners who are new to unit trusts, and information is presented in a pared-down manner. On the other hand, if you’re looking for very detailed information, you need to do a bit of digging around on this platform.

The main drawback is that there aren’t as many unit trusts to choose from compared to bigger players like POEMS and FundSupermart. And of course, it doesn’t list anything other than unit trusts, so it won’t work as a consolidated platform for all your investments.

Unit trusts – do you think the fees are worth it? Let us know your opinion in the comments.

 

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Clara Lim

I used to be MoneyDumb. I hung out at H&M every day and thought that a $50 lunch set was a good deal. These days, I spend my time researching the crap out of life and trying to maximise utility on micro-decisions. I'm not sure if that's an improvement.