Tuesday, May 06, 2014

Investing with FundSuperMart is a bad idea

I have been building up my investments in Singapore through the Unit-trusts route, which is another name for Mutual Funds. In Singapore, most banks charge you a ridiculous sales fee of anywhere around 4-5% for just letting you buy a mutual fund, and this is MAS sanctioned. On top of this MAS doesn't allow you to reach out to the Fund Manager (Franklin Templeton etc) directly - so you got little choice but to shelve out the sales fee. It is a different matter that most funds don't even earn back that fee in a year - so your money is working hard for the bank and the bankers' fat pay cheques than for you!

That said, POSB/DBS has a special offer where they won't charge you a sales fee if you do a Regular Savings Plan (RSP) through them. This was a boon for investors like me - who didn't have up front capital, but were looking to set aside something every month.

Earlier this year, I explored the idea of investing through FundSuperMart, because in addition to offering the same free RSP offer that POSB/DBS had, they also allowed for a reasonably cheap sales fee for upfront investing (0.5%) and allowed you to switch between funds for free.

So, I moved a good bit of my savings there and placed them into separate funds. I have been monitoring them weekly to see if any re-allocations need to be made and the journey was generally good. Till last week.

Last week, I did my first redemption when one of the funds, based in USD, I was invested in, was up 1.4% and I thought I could be better off re-allocating it. So, I redeemed it on 27th Apr and it was successfully sold on 28th Apr and I was happy to note that the fund was still up 1.4% - so I booked a profit.

By the time the money came into my account yesterday, the amount had reduced to become -1%! I was shocked, and angry. Upon investigation, FSM informed me that only the fund sale had been done on the 28th. The actual Forex conversion to SGD will be done only 5 days later. 5 days later!

So, not only do you carry the market risks and forex risks while you are holding the funds, FSM introduces a further one week forex risk.

As such, investing through FSM is a slow and tedious process where every transaction takes anywhere between 5-8 days to be conducted. On top of this, you also carries the risk of volatility that happens during this period.

And let me tell you, mutual funds don't grow fast enough to make this all worthwhile. I have received suggestions that perhaps ETF, where you can book your transactions during the SGX market hours, and incur lower charges is perhaps a better idea.

This episode has thought me my lessons. Even if I want to play the funds investment game, I am perhaps better off with a responsive and fast player than FSM, which is just way too slow and introduces further risks due to the slow speed.



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