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Invest in Dividend Funds and Watch Your Passive Income Grow in Singapore

What are Dividend Funds and How Do They Work?

Reading time: 5 minutes

Are you looking for ways to earn money without having to work for it? 

Passive income is a type of income that you can earn without actively doing anything. One way to build passive income in Singapore is by investing in dividend funds. In this blog post, we'll explain what dividend funds are, the different types you can invest in, the benefits of investing in them, and any risks to keep in mind.

So if you're interested in building passive income in Singapore, read on to learn more!


What is a Dividend Fund?

A dividend fund is a type of investment that focuses on buying stocks in companies that regularly pay dividends to their shareholders. Dividends are payments that a company makes to its shareholders out of its profits. When you invest in a dividend fund, you are essentially buying a share of these profits. 

The fund will then use the dividends it receives to pay out to its investors, either in the form of cash payments or by reinvesting the dividends back into the fund to buy more stocks. This can provide a steady stream of income for investors, especially if the fund is able to find companies that have a history of increasing their dividends over time.


What are the 8 different types of dividend funds?

There are a few different types of dividend funds that investors can choose from, each with its own unique characteristics and risks. Here are a few examples:

  1. Dividend Growth Funds: If you're looking for a sense of stability and predictability in your investments, consider a dividend growth fund. These funds invest in companies that have a history of consistently increasing their dividends over time. As the companies' profits grow, you can expect to receive larger dividends.

  2. Dividend Income Funds: For a steady stream of income, a dividend income fund may be a good option. These funds invest in companies that pay regular dividends, which are usually distributed on a quarterly or monthly basis.

  3. International Dividend Funds: For exposure to a diverse range of economies and industries, consider an international dividend fund. These funds invest in companies located outside the investor's home country, but it's important to be aware that these investments may also be subject to additional risks such as currency exchange rate fluctuations and political instability.

  4. Dividend Yield Funds: If you're seeking higher dividends in the short term, a dividend yield fund may be a good fit. These funds focus on buying stocks in companies that have a high dividend yield, which is the amount of the dividend payment compared to the price of the stock. It's important to keep in mind, however, that these investments may also be more risky as the companies may be more vulnerable to market fluctuations.

  5. Dividend Achievers Funds: If you're looking for a stable and predictable investment, consider a dividend achievers fund. These funds invest in companies that have a long history of consistently increasing their dividends over time, typically at least 10 years.

  6. Dividend Capture Funds: If you're comfortable with taking on more risk, a dividend capture fund may be a good option. These funds use various strategies to try to take advantage of short-term fluctuations in dividends, such as buying and selling stocks quickly to capture temporary dividend spikes. It's important to keep in mind that these investments may be more suitable for investors with a higher risk tolerance.

  7. Dividend Aristocrats Funds: For a stable investment with a proven track record, consider a dividend aristocrats fund. These funds invest in companies that have consistently increased their dividends for at least 25 consecutive years, which are often larger, well-established firms with strong financials.

  8. High Dividend Funds: If you're seeking a significant source of income, a high dividend fund may be a good option. These funds invest in companies that pay high dividends, but it's important to keep in mind that these investments may also be more risky as the companies may be more vulnerable to market fluctuations.

What are the 3 benefits of investing in dividend funds?

  1. Passive income: One of the great things about investing in dividend funds is that you can earn passive income without having to constantly monitor your investments.

    The fund's manager takes care of that for you, and all you have to do is sit back and collect your dividends.

  2. Diversification: When you invest in a dividend fund, you are essentially owning a small piece of many different companies. This helps to spread out your risk, since you are not relying on the success of just one company. More on that here by Dollars and Sense.

  3. Ease of management: You don't have to worry about the day-to-day management of the companies in the fund, since that's the job of the fund manager. As said by Fidelity here.

Are there any risks involved with investing in dividend funds?

It's important to keep in mind that investing in any kind of fund, including dividend funds, carries some level of risk. The value of your investments may go up or down depending on the performance of the companies in the fund.

It's always a good idea to do your own research and consult with a financial advisor before making any investment decisions.


The Dire Consequences of Not Investing in Dividend Funds

  1. One consequence of not investing in dividend funds is that you may miss out on a potential source of income. Dividend funds can provide investors with a regular stream of income, which can be especially appealing for retirees or those seeking a source of passive income. By not investing in dividend funds, you may be missing out on this opportunity.
  2. Another consequence is that you may not be diversifying your portfolio as much. Dividend funds can provide investors with exposure to a wide range of industries and companies, which can help diversify your investments and reduce risk. By not investing in dividend funds, you may be missing out on this opportunity to diversify.
  3. Finally, you may be taking on more risk by not investing in dividend funds. Some dividend funds may be less risky than other types of investments, such as stocks or bonds, as they tend to focus on larger, more established companies that have a history of paying dividends. By not investing in dividend funds, you may be taking on more risk in your portfolio.


Wrapping up

Overall, investing in dividend funds can be a great way to build passive income in Singapore. It's an easy way to own a piece of many different companies and receive regular payments without having to put in a lot of effort. Just make sure to do your homework and understand the risks involved before diving in.

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The Passive Income Guy

Benjamin has helped hundreds of people, just like you, earn over $36,000 in passive income each year.

His clients aren't any smarter or luckier than you. In fact, they are ordinary people with 9-5 jobs in industries like engineering, social services, and healthcare. The only difference is they learned the right steps to building passive income.

We know that taking control of your financial future can be intimidating, but we are here to support you every step of the way. Whether you are just starting out on your financial journey or looking to diversify your portfolio, we can help you create a customised plan to meet your specific goals.

We can't wait to help you get started on building passive income so you can create a brighter financial future for you and your loved ones.

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Former accountant turned financial planner
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Been in the wealth management industry since 2017
Graduated top of class with a degree in accounting and finance
Associate Director of Sales with Dunn and Partners – a branch of Manulife Financial Advisers (MFA)

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