What Are Mutual Funds, And How to Pick The Best Mutual Funds In Singapore 2023

Alevin Chan

Alevin Chan

Last updated 03 April, 2023

Mutual funds are a popular and powerful way for investors to diversify their portfolios. Here’s everything you need to know about mutual funds, including how they work, and how you can start investing.  

Mutual funds are a commonly held investment product in Singapore. Their popularity stems from several factors, including affordability, requiring little to no maintenance, and offering a high degree of liquidity. 

But perhaps the most attractive feature of mutual funds is how they enable individual investors with limited capital to profit from leading securities and assets the same way large institutional investors do. 

How do mutual funds accomplish this, and are mutual funds the right investments for you? 

Let’s find out with this article, which will cover:

What are mutual funds?

Simply put, a mutual fund is a pool of money that is constructed for investing purposes.

This pool of money is contributed by many individuals, who receive a proportionate amount of the profits generated by the mutual fund, according to their share of the pool. 

A mutual fund is actively managed by a professional money manager, who is responsible for fulfilling the stated objectives of the mutual fund. This could be to make capital gains, to provide income, or anywhere in between. 

In order to successfully fulfil the mutual fund’s objectives, money managers choose which assets (stocks, bonds, commodities, real estate, etc) to invest in using the money from the pool. When necessary or appropriate, they also make changes (selling, buying or switching assets) in order to optimise returns and capitalise on market movements. 



Mutual funds vs ETFs and unit trusts

You may have noticed that mutual funds sound pretty similar to exchange-traded funds (ETFs) and unit trusts. 

While there are certainly similarities, all three are distinct investment products with their own unique characteristics. See the following table for a summary.

Mutual funds Unit trusts Exchange-traded funds (ETFs)
Actively managed Professionally structured at the start, but no active management thereafter  No active management, typically tracks an index or indices 
No specific end date Has a set investment period No specific end date
Bought directly from the company issuing shares Established under a trust deed (so the investor is considered a beneficiary of the fund) May be traded on an exchange
High degree of liquidity, investors can sell their shares at any time High degree of liquidity, investors can sell their units at any time Potentially higher liquidity than mutual funds or unit trusts
Priced only once per day Priced only once per day May be traded throughout the trading day, hence price constantly fluctuates
Fees include expense ratio (management and operating fees), shareholder fees (sales charges, commissions, redemption fees) Fees include management fees, shareholder fees (sales charges, redemption fees, platform charges) Fees include expense ratio, commission, and spread. 
However, some ETFs offer low expense ratio and low or even no commissions. 

That’s a lot of info to crunch through, but here are the main points to help you better understand the differences between a mutual fund, unit trust and an ETF.

Firstly, think of unit trusts as a precursor of mutual funds. Because one basically came from the other, both share many similar characteristics. The key difference is that unit trusts have a specified end date, whereas mutual funds can go on for as long as there is sufficient investor interest. 

Also, unit trusts are not actively managed - they are initially structured by an investment professional who picks and allocates the assets in the trust, which is then pretty much left to run on its own after that. Mutual funds, on the other hand, are actively managed throughout.

Now, turning to ETFs, the main difference here is that ETFs are not actively managed, as they are typically structured to track an index or a group of indices. For this reason, fees for ETFs are often lower than mutual funds. Also ETFs are traded throughout the trading day, causing a greater degree of volatility in price. Mutual funds, in contrast, are priced only once a day. 

Reasons to invest in a mutual fund

Pros Cons
Easily and conveniently diversify your investment portfolio Fees, commissions and charges can add up, impacting your returns
High liquidity with easy access Returns fluctuate along with underlying assets
Allows individual investors to enjoy economies of scale May be difficult to make accurate comparison among different mutual funds
Professional management of your investment   

#1: Mutual funds offer easy and convenient portfolio diversification

If you’re looking for an easy and convenient way to diversify your investment portfolio, mutual funds are one of the best ways to do so. 

This is mainly due to the sheer diversity and range of mutual funds available, such that you can easily construct a portfolio made up of different mutual funds, each focused on different sectors and assets, to hedge against market volatility. 

Also, many large-cap mutual funds have multiple different stocks, bonds and other assets in their holdings, and are structured to be inherently balanced. This means it’s entirely possible to achieve a relatively well-diversified portfolio simply by buying one or two such mutual funds.

#2: High liquidity, easy access, and economies of scale

Another strong reason to invest in mutual funds is their relatively low barrier of entry, high liquidity, and economies of scale. 

Firstly, mutual funds are easily available. Not only will you find them listed on a large number of online brokerages, your local bank may also offer some under its investment suite. It is even possible to purchase mutual funds directly from investment firms, allowing you to skip third-party commissions. 

Secondly, mutual funds offer high liquidity (compared to say, real estate), as you can easily and quickly sell your shares to cash out of your position. You may do so partially or completely, depending on your circumstances. This is possible because mutual funds are settled at the end of the trading day.

Thirdly, mutual funds pool many investors’ monies together, which gives them bargaining power and the ability to move many securities en masse. This economies of scale effect trickles down to individual shareholders, who benefit from lower buying prices of securities overall. 

#3: Professional management of your investment

Another popular feature of mutual funds is the presence of active fund management, carried out by investment professionals. This is, no doubt, attractive among investors who have neither the time, inclination nor confidence to manage their own investments. 

Of course, the downside is the need to pay a management fee, which will impact your overall returns. There is also criticism that the success rates of fund managers in picking successful stocks are not demonstrably higher than if you or I were to do it ourselves. 

However, the fact remains that fund managers have a vested interest in driving the success of the mutual fund under their purview, because how much they earn depends on it.    

Popular mutual funds in Singapore 

The vast universe of mutual funds is made up of several mutual fund types, and we’ve listed some of the more popular ones below. 

The following list is by no means exhaustive. 

Type Mutual fund name
Equity fund LionGlobal Vietnam Fund
Equity fund Singlife MM Capital Growth
Equity fund UBS Global Emerging Markets Opportunity Fund SGD P
Fixed-income LionGlobal Short Duration Bond Fund Class A (SGD) (Dist)
Fixed-income JPMorgan Multi Income
Index fund SPDR STI ETF
Index fund Infinity Global Stock Index Fund SGD
Specialty fund Eastspring Investments Unit Trusts - Global Technology Fund
Specialty fund United Asia Pacific Real Estate Income Fund Class SGD Acc
Balanced fund AXA Asian Balanced Fund
Balanced fund Singlife MM Balanced Growth

Equity funds

The most common type of mutual funds are equity funds, which, as the name suggests, focuses heavily on equities, i.e. stocks and shares. 

As there are many different categories of companies that mutual funds can invest in, correspondingly there are several sub-categories of equity funds on the market. 

Some of these sub-categories include: 

  • Size of the company - small, mid or large-cap
  • Investment approach - aggressive, value, income, etc
  • Territory - domestic or international

Fixed-income funds

Fixed-income funds focus on supplying steady income for investors. As such, these types of mutual funds mostly focus on debt instruments, such as government bonds, corporate bonds, and other assets designed to furnish a set, predictable rate of returns.

Fixed-income funds are also known as bond funds. Do be wary of so-called “‘high-yield bond funds’, as these usually refer to funds with junk bonds underlying them. Despite that attractive-sounding name, these types of bond funds are volatile, with uncertain returns. 

Another risk faced by fixed-income bonds is interest-rate risk - a spike in interest rates will impact the ability of the borrower to pay back the debt. 

Index funds

Index funds are mutual funds that aim to replicate the results of major market indices, such as the S&P 500, or the STI. The investing theory here is that it is often difficult to beat the market on a consistent basis. 

Instead, it is far easier to produce good results simply by tracking the performance of an index or collection of indices. 

The fund manager accomplishes this by building a portfolio with an allocation that is similar to the index he or she is following. For example, an index fund that tracks the S&P 500 would buy stocks and shares of the same 500 companies, and closely replicate the allocation as per live market capitalisation data. 

Specialty funds

Some mutual funds are structured to attempt to capture value from a particular sector that is showing promise, such as technology, or real estate. Their holdings will consist of shares of the top performers in their respective sectors.

Speciality funds also cover mutual funds that focus on exotic assets, such as luxury goods, wine or whisky, collectibles and art

Balanced funds

Another common type of mutual fund is balanced funds, which, as the name suggests, spreads its holdings out across several asset classes. 

While this allows the fund to achieve a degree of self-sufficiency in hedging against market volatility, the overall performance is expected to be quite flat. 

Hence, balanced funds are best used for investors seeking to preserve capital and value, rather than, say, grow their wealth.  

How to buy mutual funds in Singapore?

1) Sign up with an online brokerage

One of the easiest ways to get started investing in mutual funds is to purchase them through an online brokerage. Many leading online brokerages offer mutual funds, although they may also list them as ETFs and Unit Trusts.

Be sure to familiarise yourself with the online brokerages rules and regulations, as well as fee structure.

Once you’re signed up for an account, and deposited your investment funds, all you have to do is to select the mutual fund you want, and purchase the amount of shares desired. 

Afterwards, be sure to check back regularly to see how your fund is doing. You may also take profits, cash out your shares, purchase more shares, etc, depending on the performance. 

2) Check with your bank

Many local banks offer their customers investment services, and chances are you’ll find some mutual funds among the products. 

If you’re happy with the selection of mutual funds available at your bank, you may choose to sign up for an investment account to start investing. 

Before you commit, make sure to study thoroughly the investment requirements, such as budget, timeline and fees. 

3) Check your investment-linked policy (ILP)

Some insurers offer ILPs, which are designed to cover both insurance and investment needs into one convenient product. 

ILPs are paired with a sub-fund, from which they derive their cash value that accumulates over time. If you happen to be in the market for an ILP, or are already subscribed to one, you can check the sub-fund that is attached to your policy to see if it is a mutual fund. 

You can also request for your insurer to switch to a mutual fund that aligns with your investment goals

However, do note that your costs of insurance are deducted from your premiums, with the remainder then invested in the sub-fund. As such, you may find yourself not investing as much money as you’d like. (However, you may be able to adjust your premiums and/or coverage in favour of your investment goals).

Now, while this is one possible way to invest in mutual funds, it is not the conventional option for most people. This is because ILPs come with many restrictions, including penalties for early withdrawal. The likelihood of losing part of your paid up premiums (i.e., your capital) is also high, especially if you withdraw during the initial few years of the plan. 

ILPs are part of a long-term financial strategy, and should not be subscribed to on a whim. If your focus is simply to invest in mutual funds alone, this method is not suitable for you. You’ll be better off using methods 1) and 2), as mentioned above.  

Read these next:
5 Best Wealth Management Services In Singapore (2022)
Guide To Supplementary Retirement Scheme (SRS) And Tips To Maximise It
8 Ways To Accelerate Your Wealth In Singapore
Guide To Real Estate Investment Trusts (REITs), And Whether You’re Ready For It
How To Build The Best Passive Income Portfolio For Your Future Self


An ex-Financial Planner with a curiosity about what makes people tick, Alevin’s mission is to help readers understand the psychology of money. He’s also on an ongoing quest to optimise happiness and enjoyment in his life.


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