Most people are familiar with the word “stock” related to trading. Stocks are symbols of ownership in a company, and stocks can be bought and sold through stock market exchanges.
However, does one have to invest in standard stock trading? What other options are available for investment? One option is mutual funds.
Mutual funds
A mutual fund is an arrangement between individuals who pool their money into one large fund that invests in different companies or assets.
There are two main types of mutual funds: open-ended and close-ended. Open-ended means they will issue more of their shares when there is strong demand and close-ended will only issue a set number of shares. It makes it easier to value closed-ended funds than open-ended funds.
Close-ended Mutual Funds vs Stock Trading in Singapore
A close-ended mutual fund is an arrangement between individuals who pool their money into one large fund that invests in different companies or assets.
There are two main types of close-ended mutual funds: regular and sectoral. Regular means that they will issue more of their shares when there is strong demand; sectoral will only issue a set number of shares. It makes it easier to value sectoral funds than regular funds.
Regular vs Close-Ended Mutual Fund
As the name implies, closed-end mutual funds are managed by firms that do not offer new shares for sale once the initial offering has been made. It limits the amount of money raised through a closed-end fund. However, it also means that share prices should remain relatively stable after the initial offering. New money is not continually introduced into the market, and no additional shares are issued.
It makes it easier to value closed-ended funds than open-ended mutual funds. One can estimate how much demand is for particular funds based on their past performance and current market sentiment.
On the other hand, open-ended mutual funds issue more of their shares when there is strong demand. However, it is harder to estimate how much demand is for particular funds. Investors could buy too many or too few shares, resulting in fluctuations in the price of those shares.
In addition, open-ended funds must constantly issue new shares to accommodate investors who decide to cash out. It means that each share in an open-ended fund could potentially have a different value depending on how much it costs to buy the next share from the company issuing them.
What are you trying to achieve with your investment?
When it comes to choosing between mutual funds or stock trading, one thing to consider is what you’re trying to achieve with your investment. If you want something that’s relatively stable and has a high chance of giving you consistent returns over time, then a mutual fund would be more suited for you than buying shares or stocks individually in various companies. If you’re looking to take more significant risks and have a higher potential return on investment, individual buying and selling will likely suit you better than sticking with just one mutual fund.
MAS regulates stock trading in Singapore
Stock trading in Singapore is regulated by the Monetary Authority of Singapore (MAS). The MAS regulates securities through the Securities and Futures Act, with Section 89A being one of their primary laws related to trading. A few other rules are also outlined, mainly the need for a trader to register before conducting any trades on various exchanges as well as outlining what people should do when terms about financial matters are explained to them. If someone doesn’t understand, they can ask questions or obtain assistance from FINRA’s Investor Education Centre.
Bottom line
Regardless of the form of trading you take part in, it’s essential to understand how it all works and ensure that you’re well educated on what fits your financial goals best. It’s also crucial to find a broker that fits into your preferences and have adequate training available through FINRA or other companies that provide education on investing strategies. Visit the site to find out more market trends and general help regarding finances.
