Understand the features, benefits and potential risks of each investment product first before choosing your suitable ones. Check out the below investment comparison on investment funds vs stocks or investment linked assurance schemes (ILAS), facilitating you to identify your best-fit investment approach.
An average stock investor may only own one or a few stocks. On the contrary, fund investment is investing in a portfolio of stocks in various countries or industries, which can effectively reduce risk through diversification.
Stock investors pick stocks on their own and they can freely adjust the stock holdings following their own preference and circumstances. While funds are managed by professionals who, after analysis, will choose stocks and adjust the portfolios based on market trends and economic conditions or track specific broad market indexes.
Stocks can be sold and bought at any time, so can funds. Investors can buy and redeem funds on each dealing day.
For average investors, putting together a portfolio of stocks to diversify risk could be costly. With aggregated capital from a group of investors, funds invest in diversified assets. This allows average investors to hold a basket of stocks through the fund with relatively small amounts of money.
It is quite flexible to buy and sell funds. One can either invest with a lump sum or choose a monthly plan, while making redemptions on any dealing day. On the contrary, under ILAS, participants can only receive the death benefit or returns after the life insured dies or a certain investment horizon (usually 5 to 20 years).
While fund investment mainly aims at capital appreciation or a certain level of protection against inflation, the ILAS focuses more on the long-term planning of assets and estate.
The return of a fund investment is quite straightforward as it is directly linked to the fund’s performance. As for the ILAS, return is calculated by the insurance company pursuant to the policy provisions, taking into account the death benefit, which may not completely match with the performance of the selected funds in the insurance policy.
In a fund product, fees and charges, e.g. initial charge, management fees, redemption charge, together with their proportions, will be listed in the prospectus. In an ILAS product, in addition to what charged in the underlying funds, other fees and charges related to the insurance policy may also be included.
Identify differences between funds and other investment products
Understand the financial pyramid to help achieve financial freedom and early retirement
Investors should note that all investments involve risks (including the possibility of loss of the capital invested), prices or value of investment fund units may go up as well as down and past performance information presented is not indicative of future performance. Investors should read carefully and understand the relevant offering documents of the investment funds (including the fund details and full text of the risk factors stated therein) and the Notice to Customers for Fund Investing before making any investment decision. Investment funds are investment products and some may involve derivatives. Investors should carefully consider their own circumstances whether an investment is suitable for them in view of their own investment objectives, investment experience, preferred investment tenor, financial situation, risk tolerance abilities, tax implications and other needs, etc., and should understand the nature, terms and risks of the investment products. Investors should obtain independent professional advice if they have concerns about their investment.