When we speak of Accredited Investors, we often associate them with the rich and savvy that has access to exclusive investment opportunities beyond the reach of retail investors. However, it does not have to be so, and some accredited funds are well within reach of retail investors. Still, it is important to learn about the various trade-offs of these funds before you jump in. Let’s find out what exactly are the differences and how a retail investor can access accredited funds and enjoy the best of both worlds!
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An investor can obtain an “Accredited Investor” classification upon meeting any one of the requirements set by Monetary Authority of Singapore:
- Have an annual income in the preceding 12 months of not less than S$300,000
- Have net financial assets (net of any related liabilities) exceeding S$1,000,000
- Have net personal assets exceeding S$2,000,000
Accredited Investors are actually less protected by regulations, as they are deemed to be better informed and needs lesser guidance. Hence, as retail investors, you can gain access to accredited funds when guided by professional advisors.
Accredited Investors have access to a wider range of investment funds, which often promises higher returns but often entail higher risks. Often, these funds also have longer lock-up periods and large minimum investment sums. We will cover some of them below:
- Private Equity: Investing into shares or debt of private companies that are not listed on a public exchange. Hence, these investments are less subjected to public sentiments which often increase the volatility of investments.
- Venture Capital: Investing into shares or debt of promising start-ups at very early stages of their development, at attractive prices. When the start-ups eventually mature, venture capitalists will cash out at a huge return to their initial investments.
- Hedge Funds: Employing sophisticated investment strategies to achieve positive returns regardless of market conditions. Each Hedge Fund is highly varied and has its own unique investment strategy which ranges from buying stocks on leverage (borrowing capital) to quantitative strategies.
Due to MAS regulations, not much detailed information about these mysterious funds can be found online. Usually, managers of these funds approach Accredited Investors through private events, galas or simply referrals.
So, are retail investors completely left out of the accredited world? Certainly not! Retail investors can access certain accredited funds through licensed financial advisors who are able to guide them through the risks and rewards of these funds.
While these funds entail varying risks, they are also able to bring about huge benefits to your overall investment portfolio. Some advantages are:
- Diversification: Unique investment opportunities that are not listed on public exchanges are less subjected to market swings and irrational market behaviours, helping to diversify many risks associated to retail funds.
- Returns: Accredited funds usually employ sophisticated investment strategies aimed at higher returns, possibly giving your portfolio a needed boost.
- Access to greater investment universe: Accredited funds provide opportunities to invest in niche areas which retail funds do not offer, such as start-ups, which may better align with your investment goals.
Retail funds are available to general investors without having to seek additional approvals apart from the ordinary KYC process. They are relatively easy to invest in with much fewer intricacies. Some examples are:
- Exchange Traded Funds (ETF): Publicly traded investment funds which tracks the performance of a specific index – such as the Straits Time Index (STI). You are free to buy or sell these funds on the exchange, subjected to market hours.
- Mutual Funds/Unit trusts: Actively managed funds guided by a stated investment objective – for instance, a China focused fund. These funds are not listed on an exchange, but you are free to buy or sell these funds, usually through a third-party provider such as a financial advisor or a digital platform.
There are over thousands of funds easily available to all investors. Each of these funds are different in terms of investment objectives, fees, and minimum investment sum. Be sure to thoroughly read through the prospectus before placing your investments. You can also contact a financial advisor to assist you with your investments!
Each fund entails unique risks, and it is important to weigh your risk-reward preference and other personal needs before jumping in. A few areas for consideration will include:
- Risk & Returns
- Fees
- Lock-up period
- Minimum lump sum
After all when it comes to investing, there is always something for each and everyone of us. A well-rounded investment plan should be tailored to our specific needs and risk appetite. Often, we find that the best solution is to have some of everything and enjoy the best of both worlds. If you are unsure, always reach out to an expert that can guide you through your investing journey.
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