Unit Trusts vs Mutual Funds vs ETFs vs Money Market Funds: Key Differences and Similarities Explained

Investors often compare unit trusts, mutual funds, ETFs, and money market funds because they all offer diversification, professional management, and accessibility. However, they differ in how they are structured, traded, and managed, which impacts their suitability for different financial goals.

A unit trust pools money from multiple investors and is actively managed to achieve a specific investment objective. Mutual funds work similarly but may have different legal structures depending on where they are offered. ETFs (Exchange-Traded Funds) are more cost-efficient and can be traded like stocks on an exchange, making them a flexible alternative. Meanwhile, money market funds focus on preserving capital and providing liquidity, making them ideal for short-term investors.

In this guide, we’ll break down the key differences and similarities between these four investment vehicles, helping you understand:

• How each one works and their unique characteristics
• Which investment type suits your financial goals
• The costs, risks, and returns associated with each

By the end of this article, you'll have a clear understanding of whether unit trusts, mutual funds, ETFs, or money market funds align best with your investment strategy.

What exactly are these investment vehicles?

Each of these investment products serves different purposes, offering varying levels of risk, liquidity, and returns. Here’s how they work:

What are unit trusts?

Unit trusts work similarly to mutual funds but are structured as a trust, where investors hold units instead of shares. The trustee manages the fund on behalf of investors, ensuring compliance with regulations and protecting investor interests.

Unit trusts are not traded on stock exchanges and can only be bought or sold through fund providers. Their price is determined by NAV, which fluctuates based on market conditions and fund performance.

What are mutual funds?

Mutual funds pool money from multiple investors to invest in a diversified portfolio of stocks, bonds, or other securities. These funds are actively managed by professionals who decide which assets to buy or sell to meet specific investment objectives.

Returns come from capital gains (when the value of investments rises) and dividends (if the fund distributes earnings). Since mutual funds are priced based on their net asset value (NAV), which is calculated at the end of each trading day, they cannot be traded throughout the day like stocks or ETFs.

What are ETFs?

Exchange-traded funds (ETFs) track an index, sector, or asset class, allowing investors to gain exposure to a diversified portfolio in a single trade. Unlike unit trusts and mutual funds, ETFs are bought and sold on stock exchanges throughout the day, just like stocks.

For example, the Straits Times Index (STI) ETF mirrors the performance of Singapore’s top 30 companies. ETFs are typically passively managed, meaning they track an index rather than trying to outperform it, which results in lower management fees than actively managed funds.

What are money market funds?

Money market funds, also known as cash management funds, invest in short-term, low-risk debt instruments such as government bonds, treasury bills, and corporate commercial paper. These funds aim to preserve capital while providing liquidity, making them a preferred choice for investors looking for a safe place to park cash.

Unlike traditional savings accounts, money market funds may offer higher returns, but returns are not guaranteed and can fluctuate based on prevailing interest rates. Most money market funds allow withdrawals at any time with no lock-in period, making them highly liquid.

Key factors to evaluate before investing in these investment funds

Despite the differences in structure, management style, and trading mechanisms, there are several key aspects investors should analyze before investing in any fund. These factors are typically outlined in a fund’s monthly factsheet and annual report and can help assess whether the investment aligns with your financial goals.

1. Fund mandate and investment objective

Every fund has a mandate, which defines its investment strategy, target asset classes, and risk level. Before investing, review whether the fund is focused on capital appreciation, income generation, or a mix of both. For example:

• Equity funds aim for long-term growth by investing in stocks.
• Bond funds focus on stable income with lower volatility.
• Balanced funds blend stocks and bonds for moderate risk and returns.

2. Benchmark index

A fund’s benchmark index serves as a reference for performance comparison. This is particularly important for actively managed funds, as they aim to outperform their benchmark. Common benchmarks include:

• Straits Times Index (STI) for Singapore-based equity funds.
• MSCI World Index for global equity exposure.
• S&P 500 Index for U.S. stocks.

If a fund consistently underperforms its benchmark, it may not be worth the higher fees of active management.

3. Fund track record and performance history

Look at how long the fund has been in operation. A longer track record (at least 5-10 years) provides better insight into:

• Performance across different market cycles (bull and bear markets).
• Consistency in delivering returns relative to its benchmark.

Avoid investing solely based on short-term gains, as past performance may not always predict future results.

4. Fund details: size, currency, domicile, and management

• Fund size – Larger funds tend to be more stable and liquid, but excessively large funds can face challenges in generating high returns.
• Currency exposure – If a fund is denominated in a foreign currency, be aware of exchange rate risks.
• Domicile – The country where the fund is registered affects tax regulations and investor protections.
• Fund manager reputation – Check the expertise and credibility of the portfolio management company.

5. Underlying assets and diversification

Examine the fund’s holdings to understand where your money is being invested. Key aspects to analyze include:

• Types of securities – Stocks, bonds, commodities, REITs, etc.
• Geographical exposure – Does it focus on a specific country or region?
• Sector concentration – Does it invest heavily in technology, healthcare, or financials?

If possible, assess the valuation of these assets to ensure the fund is not overpaying for investments.

6. Concentration levels of top holdings

A well-diversified fund spreads risk across multiple assets. However, some funds may have high concentration in a few stocks or sectors.

Check what proportion of the fund is allocated to its top 10 holdings:

• If the top holdings make up 40% or more, the fund is highly concentrated, which can increase risk.
• If the holdings are spread evenly, it suggests broader diversification.

A high concentration can indicate strong conviction from the portfolio manager, but it also means higher exposure to potential losses if those assets decline in value.

7. Fees and charges

Understand all annual and transaction fees, as they can significantly impact returns over time. Common costs include:

• Management fees (typically 1.0% - 2.0% per year for actively managed funds).
• Expense ratio (includes fund operating costs).
• Sales charges (front-end or back-end loads, usually 1.5% - 5%).
• Trading costs (for ETFs, brokerage fees apply when buying and selling).

For CPFIS-approved funds, check if they comply with CPF’s expense ratio caps to ensure cost efficiency.

8. Open-ended vs closed-ended funds

Funds can either be open-ended or closed-ended, which impacts liquidity and availability.

• Open-ended funds – New units are created when investors buy in, and existing units are redeemed when they sell. Most unit trusts, mutual funds, and ETFs fall into this category, allowing for continuous investment.
• Closed-ended funds – A fixed number of units are issued, and investors can only buy or sell on the secondary market. These are less common but can trade at a discount or premium to NAV.

Which one should you choose? 

Choosing between unit trusts, mutual funds, ETFs, and money market funds depends on your investment goals, risk appetite, and time horizon. Here’s a detailed guide on which investment suits different types of investors.

Choose unit trusts if:

✅ You prefer professional fund management – Unit trusts are actively managed, meaning a fund manager makes strategic investment decisions based on market research.

✅ You want long-term capital growth – These funds are suitable for investors who are willing to stay invested for several years to maximize returns.

✅ You don’t want to manage your own portfolio – If you prefer a hands-off approach, unit trusts provide diversification and risk management without requiring you to select individual stocks or bonds.

❌ Not ideal if you prefer lower fees – Unit trusts typically charge higher management fees compared to ETFs.

Choose mutual funds if:

✅ You want active fund management but in a structured investment vehicle – Mutual funds are similar to unit trusts but operate under a different legal structure.

✅ You seek diversified exposure with professional oversight – Mutual funds invest in a wide range of stocks, bonds, and other assets, helping spread risk.

✅ You are comfortable with slightly higher fees for potential outperformance – Actively managed funds aim to beat the market, but at a cost.

❌ Not ideal if you want intraday trading flexibility, as mutual funds are priced only once per day at NAV.

Choose ETFs if:

✅ You want a cost-efficient investment – ETFs typically have lower expense ratios than unit trusts and mutual funds because they are often passively managed.

✅ You prefer trading flexibility – ETFs can be bought and sold anytime during market hours, unlike unit trusts or mutual funds, which are priced only at the end of the day.

✅ You are comfortable managing your own investments – Since ETFs trade like stocks, investors need to monitor their portfolios and rebalance as needed.

❌ Not ideal if you prefer active management, as most ETFs simply track an index and do not seek to outperform the market.

Choose money market funds if:

✅ You need capital preservation and liquidity – These funds invest in short-term, low-risk assets, making them ideal for parking cash securely.

✅ You want quick access to your money – There are typically no lock-in periods, allowing you to withdraw funds as needed.

✅ You want slightly better returns than a regular savings account – While returns are not guaranteed, money market funds generally offer higher yields than bank deposits.

❌ Not ideal if you want higher returns, as money market funds focus on stability rather than growth.

Blended investment portfolio with StashAway

Diversifying your investment portfolio by combining unit trusts, mutual funds, ETFs, and money market funds can help manage risk and optimize returns. Instead of relying on a single investment type, blending different vehicles allows you to balance growth-oriented assets with stable, low-risk instruments that provide liquidity and income. However, manually selecting and managing a diversified portfolio can be time-consuming and complex, requiring continuous monitoring and rebalancing.

This is where StashAway makes investing effortless. Instead of choosing and investing in individual funds yourself, StashAway offers professionally designed portfolios that automatically diversify your investments across multiple asset classes:

• General Investing powered by StashAway – A globally diversified ETF-based portfolio that balances risk and returns while adapting to market conditions.
• StashAway Simple™ Cash – A cash management solution offering returns of 2.8% – 3.8% p.a.. Allowing you to invest in money market funds and bond funds with competitive yields and flexible liquidity.
• Income Investing powered by J.P. Morgan Asset Management – A low-risk bond portfolio designed for steady income generation, currently offering a 5.1% p.a. portfolio yield with flexible payouts.

With StashAway, you don’t have to worry about manually picking and managing investments. The platform’s automated, data-driven approach ensures your portfolio is well-diversified, optimized for risk management, and adjusted over time—all without the hassle of active decision-making.

Pros and cons of each investment type

Each investment type has its own advantages and drawbacks. Here’s a detailed breakdown:

Unit trusts

✅ Professional management – A fund manager makes investment decisions based on market research.

✅ Diversification – Your money is spread across different asset classes, reducing overall risk.

✅ Suitable for long-term investors – Helps in wealth accumulation over time.

❌ Higher fees – Actively managed funds have management fees, sales charges, and other costs.

❌ Lower liquidity – Unlike ETFs, unit trusts can only be bought or sold at the end of the trading day based on NAV.

Mutual funds

✅ Actively managed, with the potential for outperformance – Fund managers aim to beat market benchmarks.

✅ Diversified portfolio – Reduces risk by spreading investments across multiple securities.

✅ Variety of fund types – Includes equity, bond, balanced, and sector-specific funds.

❌ Higher costs – Management fees and expense ratios can be high.

❌ Limited trading flexibility – Only priced once per day at NAV, making intraday trading impossible.

ETFs

✅ Lower costs – Most ETFs are passively managed, reducing management fees.

✅ Traded throughout the day – Unlike unit trusts or mutual funds, ETFs can be bought and sold anytime during market hours.

✅ Passive investing reduces human error – ETFs track an index, removing the risks of poor fund manager decisions.

❌ Less potential for active outperformance – Since most ETFs only mirror an index, they do not seek to beat the market.

❌ Requires a brokerage account – Unlike unit trusts and mutual funds, ETFs require investors to trade through a brokerage platform.

Money market funds

✅ Low risk and highly liquid – Invests in short-term, high-quality debt instruments.

✅ Good for emergency funds or cash reserves – Allows easy withdrawal without major value fluctuations.

✅ Minimal fees – Typically have very low expense ratios compared to other investment funds.

❌ Lower returns – Does not provide the same growth potential as stocks, ETFs, or unit trusts.

❌ Not ideal for long-term wealth accumulation – Meant for short-term cash management rather than capital appreciation.

Frequently asked questions (FAQs)

Here are some common questions investors have when comparing unit trusts, mutual funds, ETFs, and money market funds.

1. Are unit trusts and mutual funds the same?

Unit trusts and mutual funds are very similar, as both pool money from multiple investors to invest in a diversified portfolio of assets. The key difference is structural:

• Unit trusts operate under a trust-based structure, where a trustee holds assets on behalf of investors.
• Mutual funds are typically corporate entities, where investors own shares in the fund.

In practice, they function similarly, and the terms are often used interchangeably, especially outside the U.S.

2. Which is cheaper: ETFs or unit trusts?

ETFs are generally cheaper than unit trusts because:

✅ Most ETFs are passively managed, tracking an index instead of requiring active stock selection, reducing management fees.

✅ ETFs have lower annual expense ratios, usually under 0.75%, whereas unit trusts often charge 1.5% - 2.0% per year.

✅ ETFs don’t have upfront sales charges, while unit trusts may charge an initial sales fee of 1.5% - 5%.

However, ETFs require brokerage fees when buying or selling, which could add costs depending on trading frequency.

3. Can I invest in ETFs through CPF?

Yes, you can invest in CPF Investment Scheme (CPFIS)-approved ETFs, but only using your CPF Ordinary Account (OA) funds. Some approved ETFs include:

• Nikko AM Singapore STI ETF
• SPDR Straits Times Index ETF

CPF does not allow investment in foreign ETFs or ETFs that track commodities (e.g., gold ETFs). Before investing, check the latest CPFIS-approved ETF list.

4. Are money market funds safer than bank deposits?

Money market funds carry slightly more risk than bank deposits because they invest in short-term debt instruments rather than being insured savings accounts. However:

✅ They aim to preserve capital and provide liquidity.

✅ Returns are typically higher than regular bank savings accounts.

✅ They have no lock-in period, allowing easy withdrawals.

The main risk is that returns are not guaranteed and may fluctuate based on interest rate movements.

5. Do ETFs pay dividends?

Yes, some ETFs pay regular dividends, while others automatically reinvest earnings back into the fund.

• Dividend-paying ETFs distribute payouts quarterly, semi-annually, or annually.
• Accumulating ETFs reinvest dividends to increase fund value instead of paying them out.

Always check an ETF’s dividend policy before investing.

6. How do I redeem unit trusts?

To redeem a unit trust:

1. Submit a redemption request through the fund provider or investment platform.
2. The redemption is processed at the next NAV price, as unit trusts are priced once per day.
3. The fund provider will credit the proceeds to your linked bank account within a few business days.

Unlike ETFs, unit trusts cannot be sold instantly on stock exchanges.

7. Which investment type is best for passive investing?

If you prefer a passive, hands-off investment, ETFs are the best choice because:

✅ They track an index, reducing the need for active fund management.

✅ Fees are lower than unit trusts and mutual funds.

✅ ETFs provide instant diversification without requiring stock picking.

However, money market funds are another passive option for those prioritizing capital preservation over growth.

8. Can I lose money in a money market fund?

While money market funds are low risk, they are not risk-free. Investors may experience small losses if:

• Interest rates rise sharply, reducing the value of short-term debt instruments in the fund.
• The fund’s underlying investments default, though this is rare due to the high credit quality of money market instruments.

Unlike bank deposits, money market funds are not insured, so capital preservation is not 100% guaranteed.

9. Do ETFs have management fees?

Yes, ETFs charge an expense ratio, which is an annual fee deducted from fund assets.

• Passive index ETFs typically charge 0.1% - 0.75% annually.
• Actively managed ETFs may have higher fees, around 0.5% - 1.5%.

However, ETFs do not charge upfront sales fees, making them cheaper than most actively managed unit trusts.

10. What happens if a fund is closed or liquidated?

If a unit trust, mutual fund, or ETF is closed or liquidated, investors typically receive the remaining value of their holdings. The process includes:

1. The fund manager sells all assets in the portfolio.
2. After settling liabilities, the proceeds are distributed to investors based on their unit/share ownership.
3. Investors can reinvest the proceeds in another fund or withdraw the amount.

Fund closures usually happen due to low investor interest or poor performance.

11. Can I withdraw money from a unit trust anytime?

Yes, but unit trusts are not instantly liquid like ETFs or money market funds. When redeeming a unit trust:

✅ You submit a withdrawal request to the fund provider.

✅ The fund processes the request at the next NAV pricing.

✅ Proceeds are credited to your account within 3-7 business days.

Unlike stocks or ETFs, you cannot sell unit trusts immediately on an exchange.