CPF Investment Scheme (CPFIS): Should you invest your CPF money?

Come Oct 1, 2020, fund sales charge will be slashed to 0 per cent .

And portfolio wrap fees will be reduced to up to 0.4 per cent .

While this is welcomed news for CPFIS investors as this means lower investment costs.

There are concerns in the industry that this might spur Financial Advisors (FAs) to sell higher-cost funds which pay higher trail fees.

FYI: trail fees are a portion of fund annual management fees which are paid to fund distributors

So if you choose to invest your CPF monies via the CPFIS, you’ll want to take note of these changes.

And be wary of the kind of funds which your FAs recommend you.

On top of that, make sure you consider the opportunity cost too.

Since CPF’s interest rate for the Ordinary (2.5 per cent) and Special Account (4 per cent) is hard to beat given today’s low-interest-rate environment …

TL;DR: Should I invest my CPF monies through CPF Investment Scheme (CPFIS)?

If we’re comparing the returns which CPFIS-OA vs CPF-OA can give:

Basically, the returns for CPFIS-OA depends on how proficient you are as an investor.

Whereas CPF OA will always give you risk-free interest of 2.5 per cent per annum (p.a.).

Here’s a look at CPFIS-OA members with profits more than 2.5 per cent p.a.:

• In FY2019: 46 per cent
• In FY2018: 38 per cent
• In FY2017: 74 per cent
• In FY2016: 78 per cent
• In FY2015: 27 per cent

See how there’s NO fixed pattern of success?

It really depends on how confident you are in being able to beat CPF’s guaranteed 2.5per cent.

If you’re not, it’s probably a better idea to just leave your money in your CPF to earn that risk-free interest.

Should I invest my Central Provident Fund (CPF) monies?

Depending on how you see it…

A lot of Singaporeans believe that their monthly contribution to CPF is money that is as good as gone.

And that’s because the funds locked away in our CPF accounts aren’t that easily accessible.

Even when we’re given the opportunity to use some of that money.

It comes with a myriad of caveats like us having to meet the Full Retirement Sum before we can even withdraw a single cent.

On top of that, the prevailing CPF interest rates while good, aren’t that great either…

Here are the current interest rates for our CPF accounts:

Account Name	Annual Interest rate
Ordinary Account (OA)	2.5 per cent (up to 3.5 per cent)
Special Account (SA)	4 per cent (up to 5 per cent)
Medisave	4 per cent (up to 5 per cent)
Retirement Account (RA)	4 per cent (up to 5 per cent)

Looking to game the system by transferring more money into your Special Account (SA) since it has a higher interest rate?

Think again!

Transferring your OA monies to your SA is irreversible .

So once you do it, you can’t transfer it back to your OA to fund your HDB BTO purchase or spend it on education.

It’ll just be locked up until you reach retirement.

Side note: if you’re serious about taking advantage of the SA’s higher interest rates, you can top-up your SA with cash AND save on your income tax too!

So that pretty much means that you bobian (Hokkien: no choice) have to leave your monies in your CPF accounts and be happy with that minimum 2.5 per cent to 4.0 per cent p.a. interest.

But what if you’re an investor who can get better returns than the 2.5 per cent on your OA savings?

That’s where the CPF Investment Scheme (CPFIS) comes into play.

What is CPF Investment Scheme (CPFIS)?

The CPFIS allows CPF members to invest their CPF savings in various instruments such as:

• bonds
• fixed deposits
• insurance products
• shares
• unit trusts

For a full list of what you can invest your CPF monies in.

CPF has an extensive list along with clear guidelines and criteria for your reference.

Who is eligible for the CPF Investment Scheme (CPFIS)?

If you’re interested in investing your CPF monies through the CPF Investment Scheme, there are a few requirements you’ll need to fulfil:

Requirements	Minimum Requirement
Age	18 years old
Balance in CPF (OA)	$20,000 for CPFIS-OA
Balance in CPF (SA)	$40,000 for CPFIS-SA
Legal Status	Not discharged bankrupt

You’ll notice that that there are two different requirements for the CPF account balance.

And that’s because they are for two different CPF investment schemes: the CPFIS-Ordinary Account (OA) and the CPFIS-Special Account (SA).

More on that in a bit.

What can I invest using the CPF Investment Scheme (CPFIS)?

The CPF Investment Scheme allows you to invest your CPF monies into a variety of products :

Investment Products	Can you investing using your CPF savings from		Remarks
	CPFIS-OA	CPFIS-SA
Unit Trusts (UTs)	Yes	Some	UTs with higher risk not included in CPFIS-SA
Investment-linked insurance products (ILPs)	Yes	Some	(ILPs with higher risk not included in CPFIS-SA)
Annuities	Yes	Yes	-
Endowment Policies	Yes	Yes	-
Singapore Government Bonds (SGBs)	Yes	Yes	-
Treasure Bills (T-bills)	Yes	Yes	-
Exchanged-Traded Funds (ETFs)	Yes	No	-
Fund Management Accounts	Yes	No	-
Fixed Deposits (FDs)	No products at the moment		-
Statutory Board Bonds	No products at the moment		-
Bonds Guaranteed by Singapore Government	No products at the moment		-
Shares	Up to 35 per cent of investible savings	No	Share must be offered by a company incorporated in Singapore, denominated in Singapore dollar and must be listed on the Singapore Exchange (SGX) Main Board.
Property Fund	Up to 35 per cent of their investible savings	No	Fund must be incorporated in Singapore, denominated in Singapore dollar and must be listed on the Singapore Exchange (SGX).
Corporate Bonds	Up to 35 per cent of their investible savings	No	Bonds must be offered by a company incorporated in Singapore, denominated in Singapore dollar and must be listed on the Singapore Exchange (SGX) Main board.
Gold ETFs	Up to 10 per cent of their investible savings	No	Only SPDR Gold Shares
Other Gold products (Gold certificates, Gold savings accounts, Physical Gold)	Up to 10 per cent of their investible savings	No	Please approach UOB for the list of gold products offered.

Generally, using your OA savings to invest under CPFIS-OA means that you can choose from more investment products like shares, gold, higher-risk ETFs, and unit trusts.

Whereas using your SA savings to invest under CPFIS-SA means that you can only touch the more secure stuff like Singapore Government bonds, treasury bills, annuities, and endowment policies.

You can still invest in ETFs, unit trusts, and ILPs, through CPFIS-SA.

But you’ll be limited to those which are not higher-risk (read: potentially lower returns).

Are CPFIS Investment products really that good?

There’s a common misconception amongst CPF members that products that are eligible for CPFIS is an indicator that the company or investment product is rock solid.

But this is NOT true at all.

Despite the extensive list of investment products made available to CPF members on CPFIS.

You should always do your own due diligence before investing in anything.

It’s the same with buying a TV or getting a home fibre broadband plan right?

You’re not just gonna buy whatever the saleperson is selling you right?

You’ll definitely do your research first, compare and read reviews, before even putting your money down.

So… how much of my CPF can I invest via CPF Investment Scheme (CPFIS)?

You can’t just throw ALL of your CPF monies into stocks.

In fact, as of April 1, l 2008, you cannot invest the first $20,000 in your Ordinary Account.

The maximum that you can invest in eligible stocks, property fund, and corporate bonds is up to 35 per cent of investible savings .

For Gold ETFs and other gold products, only up to 10 per cent of investible savings can be used.

To give you a better idea of what this means…

Let’s assume you have $100,000 in your Ordinary Account (this is your total investible savings).

If you withdrew $40,000 for housing, you’re left with $60,000 in your OA.

For stocks (up to 35 per cent of investible savings), you can invest up to $35,000.

For gold (up to 10 per cent of investible savings), you can invest up to $10,000.

So the maximum amount which you can technically use for CPFIS-OA investments is $45,000 .

But you still need to set aside the $20,000 which you can’t touch.

So… $60,000 – $20,000 = $40,000 .

Which means if you want to invest the maximum in stocks and the rest in gold.

You can only funnel $35,000 to stocks and $5,000 to gold .

What are the potential returns for CPFIS Investments?

Even if you’re a really good investor.

The guaranteed 2.5 per cent and 4per cent interest earned on the CPF Ordinary Account and Special Account, respectively.

Is pretty hard to beat give this low-interest-rate environment we’re currently in.

Where are you going to find a financial instrument that can give you such risk-free interest rates ?

If we’re comparing the returns which CPFIS-OA vs CPF-OA can give:

	CPFIS - OA	CPF OA
Interest Rate/ Return	Depends	2.5 per cent (3.5 per cent for first $20,000)
Risk	Depends on the investments	Risk-free
Liquidity	Returns will be put back into the CPF account.

I know.

Not very helpful.

But let me explain why I say that the returns on CPFIS-OA, depends.

If you check the members’ investment performance in CPFIS-OA on the CPF website.

Here’s a look at CPFIS-OA members with profits more than 2.5 per cent p.a.:

• In FY2019: 46 per cent
• In FY2018: 38 per cent
• In FY2017: 74 per cent
• In FY2016: 78 per cent
• In FY2015: 27 per cent

See why I say that it depends?

Of course, you’ll need to factor in your time horizon and how your returns might average out.

But overall, it really boils down to how confident you are in being able to beat CPF’s 2.5 per cent p.a.

Oh and additionally, you’ll also have to factor in extra costs like brokerage fees and sales charges incurred when you make a trade.

So that means that you need to make sufficient returns in order to cover these costs as well.

Otherwise, they’ll just eat into your returns and you might make lesser than CPF’s guaranteed 2.5 per cent interest at the end of the day.

What are the sales charges for CPF Investment Scheme (CPFIS)?

When it comes to investments, CPF, and money.

It often gets messy when financial advisors (FAs) get involved due to a potential for conflict of interest .

Previously, FAs can earn up to 3 per cent in sales charges (aka commission fees) when you invest your CPF savings in a financial product that is recommended by them.

They’ll also be able to charge a “wrap fee” (aka admin fee) of up to 1 per cent on your entire investment.

If you’re suay (Hokkien: unlucky) and meet an unscrupulous FA who doesn’t care about your financial health but only wants that sweet commission.

They might try all means to get you to buy whatever investment product they can push on you, because they only care about the sales charge and wrap fee.

CPF and the Ministry of Manpower recognised this problem and announced the removal of the sales charge and a reduction of wrap fees for CPFIS starting from Oct 1, 2018.

CPFIS sales charge and wrap fees	Maximum sales charge	Maximum wrap fee (per annum)
Prior to Oct 1, 2018	3 per cent	1 per cent
From Oct 1, 2018	1.5 per cent	0.7 per cent
From Oct 1, 2020 (supposed to be 1 Oct 2019)	0 per cent	0.4 per cent

The earlier announcement called for the sales charge to be removed entirely and the wrap fees cap to be lowered further by Oct 1, 2019.

But in response to industry feedback that FAs need more time to adjust to the revised CPFIS fee structure.

The sales charge removal and lowering of the wrap fees cap has been postponed till Oct 1, 2020 instead .

So take note if your financial advisor says otherwise…

More importantly, doing so reduces the cost of investing and is definitely beneficial for you if you’re considering the CPFIS to grow your CPF monies.

How to invest my CPF savings via CPF Investment Scheme (CPFIS)?

Type of CPFIS	Procedure
CPFIS-OA	Open a CPF Investment Account with DBS, OCBC, or UOB.
CPFIS-SA	No need to open a CPF Investment Account.

For CPFIS-OA, simply open a CPF Investment Account with either of these banks:

• DBS Bank Ltd (DBS)
• Overseas-Chinese Banking Corporation Ltd (OCBC)
• United Overseas Bank Ltd (UOB)

In case you’re wondering, it doesn’t matter which bank you go with.

All the fees and charges are the same for all 3 banks.

Oh, remember to bring along your CPF statement for a smoother account opening!

For CPFIS-SA, there is no need to open a CPF Investment Account.

Just approach the investment product provider directly to buy or sell your investments direct.

This article was first published in Seedly.