How To Generate Regular Passive Income From Our Investments In Singapore

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The ability to generate passive income is one of the key reasons why many people want to invest. Unlike the earned income that we receive from our jobs or side hustles, passive income allows us to earn an income with little to no labour effort on our part. The ability to generate passive income is vital for anyone who is aiming for financial independence or an early retirement.

Many investors that I know work towards building a portfolio that can give them the passive income they need, so they no longer have to work. However, that by itself isn’t enough. To truly be assured that we can attain financial independence and retire with no worries, we have to achieve a portfolio that can generate us a steady stream of passive income that can sustain our needs during both good and bad times, and not just during good times.

Also, with the current high inflation environment, it’s more important now than ever that we put our investment monies to good use so that we can also grow our passive income and protect our purchasing power, rather than leave them untouched in our savings accounts for fear of investing and to end up earning meagre interest.

For many Singaporeans, buying an investment property is one way to generate passive income. Unfortunately, managing a rental property comes with a range of challenges and may not even be as passive as it may seem. For example, managing a rental property requires tenant management, property maintenance, and the possibility of incurring unexpected costs when repairs and renovations are required. Moreover, the risk of vacancies and the volatility of the real estate market also mean that the income we generate from our rental property may fluctuate significantly. Also, properties are illiquid and may also require us to take a loan, which further adds to the risk that we face.

Asset Classes That Can Generate Passive Income

Besides an investment property, there are other asset classes that can generate regular passive income. These include real estate investment trusts (REITs), equities, bonds, and money market funds.

REITs: REITs are investment vehicles that purchase, operate, and manage income-generating properties, such as commercial real estate, apartments, industrial buildings, hotels, and shopping malls. REITs provide individuals with the opportunity to invest in large-scale, income-producing real estate without having to buy, manage, or finance properties directly. They typically offer good dividend yields as they are required to distribute a significant portion of their income to shareholders.

Equities: Equities are stocks/shares issued by companies to investors. If a company is constantly profitable and generating positive cashflow, it may also pay out dividends regularly from the profits it makes, thus giving dividend-seeking investors a regular income stream.

Bonds: Bonds are fixed-income securities representing loans made by investors to governments, corporations, or other entities. They typically have a predetermined interest rate, known as the coupon, and a specific maturity date at which the principal amount is repaid. Investors purchase bonds to earn regular interest income and to preserve capital, as they are generally considered less risky than stocks. Bonds serve as a vital component of many investment portfolios, offering a stable income stream and a means of diversification.

Money Market Funds: Money market funds are a type of fund that invests in short-term, low-risk debt securities, such as Treasury bills and commercial paper. They provide investors with a place to park cash and still earn a slightly higher yield than a typical savings account. Money market funds are known for their capital preservation, high liquidity, and modest returns, making them a popular choice for investors seeking a less risky and highly liquid short-term investment option.

Diversification Is Important To Build A Resilient, All-Weather Portfolio

Rather than choosing which of the above-mentioned asset classes to invest in, a better way to build a resilient portfolio that can withstand the ups and downs of market volatility is to ensure diversification within our income-generating portfolio. When done correctly, diversification gives investors a way to limit the risks their investment portfolio is exposed to without reducing their overall returns.

When it comes to portfolio construction, diversification doesn’t just mean diversifying within an asset class (e.g., buying multiple stocks instead of just a handful of stocks) but also across different asset classes. By diversifying our investments in different asset classes, we can enjoy a buffer against unexpected drawdowns during market downturns that may affect certain asset classes more (e.g., equities and REITs), while other asset classes (e.g., bonds and money market funds) may still continue to generate us the income we want. Such an approach not only provides a more consistent and stable long-term performance but also offers protection against unforeseen events and changes in economic conditions.

Invest In A Multi-Asset, Income-Generating Fund For Regular Passive Income & Diversification

Instead of investing on our own in each of these asset classes, which can be difficult if we do not have the knowledge and/or time to manage our portfolio, we can get immediate exposure and diversification to all these various income-generating asset classes through a fund like the United SG Dynamic Income Fund.

Managed by UOB Asset Management (UOBAM), the United SG Dynamic Income Fund, which is currently having its initial offering period from 23 October 2023 to 15 November 2023, is a multi-asset fund that invests in 5 different types of asset classes. These are Singapore REITs, Singapore Bonds, Singapore Equities, Singapore Money Market Instruments, and Asia Equities.

As a Singapore-centric fund, the aim of the United SG Dynamic Income Fund is to achieve a total return consisting of income and capital appreciation by investing in a broad range of asset classes across Singapore, including equities, real estate investment trusts (REITs), and bonds.

By doing so, the fund hopes to help investors navigate through an increasingly challenging market by preserving their purchasing power against inflation, earning attractive income, and achieving stable returns in any economic conditions.

As explained by UOBAM, it’s their belief that in the post-pandemic era, global economic conditions have become more challenging and that Singapore’s role as a leading hub for finance, trade, and innovation within a fast-growing region means it can meet many different investment objectives. For example, in 2022, while other global indexes such as the S&P 500 and the Nasdaq-100 saw negative returns, the Straits Times Index generated a positive return.

Even then, there is a small allocation within the fund to Asia Equities (a maximum of 20% allocation), presumably to capture growth opportunities when they arise within Asia.

The United SG Dynamic Income Fund Provides Attractive & Regular Income To Investors

One key feature of the United SG Dynamic Income Fund that income-seeking investors would be happy to know is that the fund aims to offer investors up to 6% p.a monthly income *.

Unlike investing in individual stocks, bonds, or even ETFs that tend to pay out their dividends annually or semi-annually, a monthly payout is ideal as it makes it easier for us to match our income to pay for our monthly expenses. It’s also truly passive, as there is no action required on our part as investors. We simply invest and allow the fund to grow, be managed, and receive the payout due to us.

*Distributions are not guaranteed. Distributions may be made out of income, capital gains, and/or capital. This relates to the disclosed distribution policy as set out in the Fund’s prospectus.

To manage the fund, UOBAM’s proprietary artificial intelligence (AI)-Augmentation capabilities will first be applied to help optimise volatile-adjusted returns via active allocation. In other words, the aim is to maximise returns for the risk level taken via dynamically allocating funds across the 5 different asset classes. Subsequently, investment analysts from UOBAM will perform the evaluation and selection of the underlying securities for the fund.

Thus, with the United SG Dynamic Income Fund,  both the optimal asset allocation and the selection of the underlying securities, will be performed by UOBAM. This will be useful for investors who want a diversified, income-generating portfolio across different asset classes, but who do not have the time and/or knowledge to determine what the optimal asset allocation is, or the right securities that they should be investing in.

For investors who are keen to invest in the United SG Dynamic Income Fund, the initial offering period (IOP) for the fund will be from 23 October 2023 to 15 November 2023 and you can subscribe to the IOP via investment platforms including FSMOne, Phillip Securities, Tiger Brokers and Webull. For corporate customers, they can subscribe through UOBAM Invest for Corporates. After the IOP, you can still invest in the fund via these platforms as well as other fund management platforms that distribute these funds.

Read Also: Why It Makes Sense For Us To Invest In A Bond Fund Even If We Like To Pick Our Own Stocks

Important notice and disclaimers

This document is for general information only. It does not constitute an offer or solicitation to deal in units in the Fund (“Units”) or investment advice or recommendation and was prepared without regard to the specific objectives, financial situation or needs of any particular person who may receive it. The information is based on certain assumptions, information and conditions available as at the date of this document and may be subject to change at any time without notice. No representation or promise as to the performance of the Fund or the return on your investment is made. Past performance of the Fund or UOB Asset Management Ltd (“UOBAM”) and any past performance, prediction, projection or forecast of the economic trends or securities market are not necessarily indicative of the future or likely performance of the Fund or UOBAM. The value of Units and the income from them, if any, may fall as well as rise. Investments in Units involve risks, including the possible loss of the principal amount invested, and are not obligations of, deposits in, or guaranteed or insured by United Overseas Bank Limited (“UOB”), UOBAM, or any of their subsidiary, associate or affiliate (“UOB Group”) or distributors of the Fund. The Fund may use or invest in financial derivative instruments and you should be aware of the risks associated with investments in financial derivative instruments which are described in the Fund’s prospectus. The UOB Group may have interests in the Units and may also perform or seek to perform brokering and other investment or securities-related services for the Fund. Investors should read the Fund’s prospectus, which is available and may be obtained from UOBAM or any of its appointed agents or distributors, before investing. You may wish to seek advice from a financial adviser before making a commitment to invest in any Units, and in the event that you choose not to do so, you should consider carefully whether the Fund is suitable for you. Applications for Units must be made on the application forms accompanying the Fund’s prospectus.

Distributions will be made in respect of the Distribution Classes of the Fund. Distributions are based on the NAV per unit of the relevant Distribution Class as at the last business day of the calendar month or quarter. The making of distributions is at the absolute discretion of UOBAM and that distributions are not guaranteed. The making of any distribution shall not be taken to imply that further distributions will be made. UOBAM reserves the right to vary the frequency and/or amount of distributions. Distributions from a fund may be made out of income and/or capital gains and (if income and/or capital gains are insufficient) out of capital. Investors should also note that the declaration and/or payment of distributions (whether out of income, capital gains, capital or otherwise) may have the effect of lowering the net asset value (NAV) of the relevant fund. Moreover, distributions out of capital may amount to a reduction of part of your original investment and may result in reduced future returns. Please refer to the Fund’s prospectus for more information.

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