Regular Savings Plan (RSP): What they are and the best ones to invest in

With the majority of the population working from home and social gatherings still being controlled, you’re likely saving from all the foregone commute and work lunches. With these extra bucks in your pocket, it’s an opportune time to start investing them. 

Regular savings plans can help you do just that, especially for investors that lack discipline, advanced knowledge or a large capital. 

• What is a RSP?
• Why you should make regular investments with RSPs
• How much to invest each month
• RSP options you can choose from

What is a regular savings plan (RSP) and how does it work?

Try not to let the ‘savings’ in the name mislead you, a RSP is an investment instrument that requires you to set aside a fixed sum on a regular basis. The money invested is channeled into assets such as stocks, ETFs and unit trusts, which means RSPs come with risks. They are also known as monthly investment plans. 

With as low as $100, you can start a RSP to grow your investment portfolio gradually, with minimal effort.

Why minimal effort? A RSP taps on the concept of dollar-cost-averaging (DCA). With the same monthly investment amount, you buy more units of the same asset when prices are low, and less when prices are high. This helps to ensure that you continue to invest regularly, regardless of the market conditions. This also allows you to average out the price of the asset you are buying into. 

Here’s a simple example of how dollar-cost-averaging works, based on a monthly investment amount of $500.

Over six months, you could have accumulated 1,112 units with $3,000. This is better than the 833 units you would have gotten from investing all $3,000 in July, though not quite as good as the 1,428 you would have gotten if you invested that amount in November. 

Reasons to make regular investments 

While we would all like to think that we have the knowledge, foresight and skill to buy low, sell high, the truth is, even professionals struggle to catch the market bottom. 

Making regular investments with DCA has the following benefits:

1. Avoid timing the market: Regular investments take away the emotions and psychological aspects of investing. You don’t have to spend extra time to always be monitoring prices.. 
2. Start small: RSPs allow you to start investing with small amounts, from as little as $50 or $100 a month. This is particularly beneficial for new investors, as there is no need to accumulate a lump sum before you start investing. This minimises the opportunity cost and maximises the power of compounding. Starting small is also less daunting for newer, apprehensive investors. 
3. Disciplined investing with low effort: RSPs ensure that you stay invested and grow your portfolio. Once the RSP is set up, this monthly investment is automatic and recurring, like GIRO payments.
4. High flexibility and liquidity: While the RSP is automatic, you can still alter your monthly investment amount. You can also stop the RSP anytime. Although this isn’t ideal, unfortunate situations do arise and this option allows you to ease cashflow temporarily and resume the plan later.

How do you determine how much you should invest each month?

Every investor’s investment goals, risk tolerance and financial stability differs. How much you invest each month depends on a few factors. 

• How much you save

The more you save, the more cash you have and the more you can afford to invest, right? That might hold on paper, but this depends on whether your savings are intended for a specific purpose, like wedding expenses or a big ticket splurge. Saving more doesn’t necessarily equate to investing more. 

• How much you earn 

If you look at monthly investment amounts as a percentage of your salary, your income is a big factor in determining how much you invest each month. A $500 monthly investment would be 11per cent of a $4,563 salary (the nominal median income in Singapore) but just 5per cent of a $10,000 salary.

If you’re looking for a budgeting guideline, the 50/30/20 rule encourages you to spend 50per cent on needs, 30per cent on wants and 20per cent on savings. From there, one consideration is to further split that 20per cent savings and invest 10per cent. That works out to be $456, amounting to $5,472 into your investments for the year—a great start for any new investor.

To grow your investments quicker with a lower salary, you could consider allocating a larger percentage of your salary to investments, to tap on the power of compounding early on. Of course, this would depend on your financial situation.

• How much you’re being charged for fees 

Like all investments, RSPs also come with a fee. This could be transaction fees, processing fees, service fees and platform fees. The costs involved will ultimately affect the performance of your investments. 

For flat fees charged, it could make more financial sense to invest a larger amount. For example, if you invest in two counters with POEMS Share Builders Plan, it would cost $6 for investment amounts below $1,000. This means that be it $100 or $900, you would incur a cost of $6. The larger your investment amount, the smaller this fee is as a percentage of your investment.

Where to start investing in RSPs 

You can start a RSP with various financial institutions, including banks, brokerage firms and robo-advisors. Here are the common providers that you can start a RSP with. 

Provider	Min. investment amount	Fees	Choice of funds
DBS/POSB Invest Saver	$100	ETFs: 0.50 per cent or 0.82 per cent per transactionUnit trusts: 0.82 per cent per transaction	ETFs or unit trusts, including:– Nikko AM STI ETF– ABF Singapore Bond Index Fund– Nikko AM-StraitsTrading Asia ex Japan REIT ETF– Nikko AM SGD Investment Grade Corporate Bond ETF
dollarDEX	$100	Annual management fee for the funds you chooseNo platform fees, switching fees, and sales charges	Unit trusts, recommended investment portfolios
FSMOne	$50 for ETFs$100 for unit trusts	ETFs: 0.08per cent or min. $1, whichever is higher (counters listed in Hong Kong and US, will have min. charge of HKD$5 and USD$1 instead)Unit trusts:– 0 per cent sales charge– Platform fee on cash/SRS investments only: 0.05 – 0.0875 per cent per quarter	ETFs, unit trusts, managed portfolios:– 1297 unit trusts from 50 fund managers– 49 ETFs– 10 managed portfolios
OCBC Blue Chip Investment Plan	$100	0.3 per cent of the total investment amount or $5 per counter, whichever is higherNew BCIP customers below 30 years old with an initial investment up to $500 enjoy a flat rate of 0.88 per cent of the total investment amount	20 counters in the Singapore market, including both stocks and ETFs
POEMS Share Builders Plan	$100	Total investment amount less than $1,000:– 2 counters or less: $6– 3 counters or more: $10Total investment amount more than $1,000: – 0.2 per cent or $10, whichever is higherOther fees here	Stocks, ETFs, unit trusts
SAXO	$100	0.75 per cent p.a. service fee 0.23 per cent expected ETF cost	Managed portfolios comprising of iShares ETFs
UOB Regular Investment Savings Plan	$100, with initial lump sum investment of $1,000 required	Information not available on website	SGD denominated unit trusts

If you’re looking for a RSP that can quickly get your investments up and running: You can consider the DBS/POSB Invest Saver or OCBC Blue Chip Investment Plan (BCIP). The DBS/POSB Invest Saver is fairly straightforward, with just four products to choose from. OCBC BCIP offers a few more options, with both stocks and ETFs.

If you are looking to start a RSP that specifically invests in stocks: You can consider POEMS. POEMS offers more than 40 counters in their Share Builders Plan, including popular blue chip stocks and REITs.

If you are looking to invest in unit trusts: You can consider investing with FSMOne. FSMOne offers a wide range of unit trusts, with more than 1200 funds under the RSP Special List that allow you to invest in the fund without meeting the minimum initial investment amount.

If you are looking to invest with a robo-advisor: Many robo-advisors such as Autowealth and Syfe, allow you to set up a RSP to make recurring investments. Your decision depends on the investment methodology adopted by the robo-advisor as well as other factors such as minimum investment amount and fees charged. 

Regardless of the provider, asset class or sum of money you choose to invest every month, making regular investments through a RSP is a great way to get started on your investment journey. The sooner you get started, the more time your investments have to compound and grow your wealth.