Investing in unit trusts in Singapore

If you’ve only got a minute:

• When you invest in unit trusts, your money is pooled with others and invested in a portfolio of assets according to a stated investment objective and approach.
• There are three common ways to invest in unit trusts: lump sum purchases via banks, RSPs like DBS Invest-Saver, and use of CPF and SRS savings.
• Before investing, it helps to understand your risk tolerance and adopt a long-term investment horizon.

Unit trusts are pooled investment products that offer diversification and professional management at a low cost of entry, making it attractive to both first-time and seasoned investors.

With such funds, your money is pooled with others and invested in a portfolio of assets according to a stated investment objective and approach.

Before deciding which unit trusts to invest and the avenues, it helps to understand the naming convention for funds, which can often be confusing to investors, even the experienced ones.

Familiarising yourself with this goes a long way towards selecting not only the right fund but knowing the share class of the fund. It can affect which currency the fund is bought at and whether dividends are reinvested or distributed to you.

How funds are named

Unit Trusts are typically classified by geography, sector and type of assets held. A fund house's fund name would reflect these.

For example, the fund below reads "Yellow Pebble Asia Energy Equity Fund". This means that the fund is managed by a fund house called "Yellow Pebble" which invests in equity stocks of companies in the energy sector that are listed in Asia.

This fund can be purchased in the Singapore dollar and is also hedged to mitigate the risk in exchange rates fluctuation. Instead of receiving dividends in cash (C) or more units (U), dividends are accumulated (Acc) and reinvested into the fund.

How to start investing in unit trusts

With an understanding of how unit trusts are named, the next step is to take note of the available investment options.

The three common ways to invest in unit trusts are through:

• Lump sum purchases via banks like DBS
• Regular savings plans (RSPs) like DBS Invest-Saver
• Use of CPF & SRS savings

Lump sum investment through DBS

At DBS, you will have access to more than 180 different funds, and the investment process is fuss-free too!

If you need some guidance on the large selection of funds or ideas on where to start, you can consider unit trusts that fall under DBS Focus Funds. They are a shortlist of positively rated funds, are updated quarterly, and are aligned with DBS’s investment views.

When you have selected your preferred fund, click ‘Buy Now’ to transact via iBanking.

RSPs

If you’re just getting into the habit of setting aside funds to invest or prefer to invest by making monthly regular investments, you can consider dollar-cost averaging (DCA) through a regular savings plan (RSP).

You can do this through DBS Invest-Saver, a RSP that allows you to invest in unit trusts from $100 monthly.

An advantage of DCA is that by making regular but small investments, you are averaging down the cost of unit trusts. This means buying more units when prices are low and fewer when prices are high.

Putting money into a fund each month also lets you benefit from the DCA approach, wherein you buy more units when prices are low and fewer when prices are high.

These are unit trusts that are available for investment under DBS Invest-Saver.

CPF & SRS

In Singapore, the Central Provident Fund (CPF) and the Supplementary Retirement Scheme (SRS) are national schemes initiated by the Singapore Government to help locals and foreigners in Singapore to plan for retirement and enjoy tax relief.

Left alone, the monies in your CPF Ordinary Account (CPF-OA) would earn an interest of up to 3.5% per annum, while your SRS savings would earn an interest of just 0.05% per year. By investing these funds, you can potentially achieve a better return than the prevailing interest rates and grow your retirement nest egg.

With DBS, you can invest in unit trusts using your CPF monies through the CPF Investment Scheme (CPFIS) and your contributions in your SRS account.

For instance, your CPF savings can be used to invest in a wide range of approved unit trusts under CPFIS.

Simply log in to digiBank, and navigate to the “Invest” tab and “Unit Trust” drop-down. You can filter the list of unit trusts for those that can be purchased using CPF and SRS balances.

Do take note that the returns and dividends you receive from your investments in unit trusts will be credited directly back into your CPF and SRS accounts.

Know your risk profile

Before investing, it helps to have a better understanding of your risk tolerance.

Investors generally have to take more risk to get potentially higher returns. Yes, there is a risk of loss, particularly over a short time frame. But being overly conservative also poses a risk. For example, not investing or investing solely inlow-risk products may result in your savings devaluing through inflation.

If you have little idea on what your level of risk tolerance is, we are here to help you.

You can assess your risk profile through the “Make Your Money Work Harder” feature in the digital financial advisory tool DBS NAV Planner.

All you have to do is to answer some simple questions, and the digital adviser will recommend top investment picks that suit your risk profile. DBS is the first bank in Singapore to offer this online service to customers. Beyond your risk tolerance, it helps to adopt a long-term investment horizon to ride out the market volatility and meet your financial needs.

This is the second article in our series on unit trusts. If you’re keen to learn more about these funds, check out the other articles:

Part 1: A beginner’s guide to unit trusts

Part 3: Costs of investing in unit trusts

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Need help selecting an investment? Try ‘Make Your Money Work Harder’ on DBS NAV Planner to receive specific investment picks based on your objectives, risk profile and preferences.

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Disclaimers and Important Notice
This article is meant for information only and should not be relied upon as financial advice. Before making any decision to buy, sell or hold any investment or insurance product, you should seek advice from a financial adviser regarding its suitability.

All investments come with risks and you can lose money on your investment. Invest only if you understand and can monitor your investment. Diversify your investments and avoid investing a large portion of your money in a single product issuer.

Disclaimer for Investment and Life Insurance Products