If you are a Singaporean who are of age and are already working, you might have a Central Provident Fund (CPF) account. Many Singaporeans use this fund to make their purchase of a high-paying asset like a house. However, many have yet to know that this fund not just helps you to have some savings for your retirement, it also enables you to make an investment. Keep on reading and start investing now!
What is a CPF, CPF Investment Account (CPFIA)?
CPF is a scheme introduced by the Singaporean Government. It necessitates that citizens and permanent residents put aside 20% of their gross wage for retirement, healthcare, and shelter.
CPF credits 2.5% interest and 4% interest for savings in the Ordinary Account (OA) and savings in the CPF Special Account (SA) as well as the Medisave Account and Retirement Account respectively. An additional 1% interest will be paid on the initial $60,000 of the combined balance inclusive of up to $20,000 from OA.
The CPF Investment Account, on the other hand, is a mechanism for one to invest their CPF savings. Simply put, the CPF Investment Account allows one to make an investment without having a lump sum cash in hand.
Besides, it helps one to make the best use of CPF funds for maximum growth. It is easy, convenient and it aids to manage one’s portfolio using the CPF. However, this is only applicable to anyone who isn’t an undischarged bankrupt.
What are the requirements for investing with CPF:
- CPF account.
- You are 18 years old and above.
- You are not an undischarged bankrupt.
- You would have to have more than $20,000 in your CPF OA.
- You must not have an existing CPF Investment Account with other banks.
Next, regarding investment returns, if you are interested in investing in any share, the value you obtained from your investment will go back to your CPF account, hence, increasing the current value calls for growth. This is to spark encouragement to Singaporeans to maximize their savings for retirement.
Assuming you are in your 20s or 30s now, deciding on investing through your CPF account should inevitably include your vision of the future since you will get to indulge the benefit quite sometime later.
How does CPF Investment work? What should I know?
Commonly, Singaporeans are known to use their CPF account to make their house purchase. Investing in shares with it is apparently not widely aware of.
Nonetheless, in the last 10 years or so, statistically, under 20% of people who invested in shares with their CPF account managed to get a larger number of returns than the OA’s assured returns of 2.5%. Being strategic and smart about when and how to invest your funds is the prime key to grow your bucks.
The most frequent whine we hear people say about their CPF savings is – the funds are not seen. Following that will be – interest rates of CPF accounts are too low to battle against the prevailing inflation rate. With this problem, comes the solution- the CPF Investment Scheme (CPFIS).
Key Rules for CPFIS Applicants
Below are key rules for applicants to know before investing with CPF Investment Scheme or CPFIS:
You are eligible to invest if you reached 18 years old and above. Also, you are required to have more than $20,000 in your OA.
This specific criterion is set up as a protection for the investors; which are, you are at a certain lawful age to be accountable for your own mature decisions as well as making sure you still have some savings left in your account if things didn’t work out well.
Permissible amount to invest using CPF
There are two methods involved to know how much exactly you can invest based on your existing CPF funds.
The rule of thumb for both methods is method 1, you can invest up to 35% of the investible savings. Method 2, the first $20,000 of your OA cannot be used for investment.
For a more accurate value, you just have to log onto the CPF website, log into your own account and select ‘My Statement.’ Under Section C, find a section called ‘Stocks,’ here it tells you how many from your savings can be used.
Only the CPF-approved shares are investable
Five classifications that make the shares CPF-approved:
- A company situated in Singapore
- A company listed in SGX Main Board primary listing or former SESDAQ shares
- Commerce of the shares done in Singapore dollars
- A company that is not on the SGX watch-list
- Companies allow agent banks to appoint CPF shareholders as representatives to attend and cast votes in meetings
For your information, there are currently more than a thousand companies that CPF-approved. Hence, you do not have to worry about not having a variety of choices.
Strategize your investment
One must be very careful and mindful of how and when it is the best time to invest your funds. Remember, even without investing it, you already assured a total of 6.5% interest rates. 2.5% in your OA and the remaining 4% in your SA annually.
Simply transfer your money to your SA to invest in shares. You need to invest in a stock that would get you more than 4% returns per year.
Should I invest in the CPF Investment Scheme (CPFIS)?
It is very much agreeable that CPF Investment is much better than leaving your cash in your bank account unmanaged. Not only that, but it is also zero-risk. It is undeniable that the rates of interest for SA is higher, hence much preferable than OA. For this reason, you can transfer your funds from your Ordinary Account (OA) to your SA.
Bear in mind that you cannot transfer the funds the other way around. Once it is in your SA, it will be there only for retirement. OA – on the other hand, the funds can be used for education and housing expenditure. Hence, the CPF Investment Scheme or CPFIS is helpful in many ways you think suits you best. This way, you may gain higher returns than the supposed 2.5% rate into your OA too.
Before you could start with your investment through the scheme, there are two important things we should talk about as the deciding factors. One is doing it through the right company.
Second, is doing it at the right time. Doing it through the right company meaning the company you invest in should be well-established, financially stable with steady recurring income.
Avoid investing in a company that is project-based, their incomes are much more unpredictable. Doing it at the right is crucial. Every penny you have in your CPF account are your very own hard-earned money, those are your efforts.
Start your investment when you are certain about every single detail of your concerns.
Study and observe the best opportunity to gain higher interest rates in your account. A good basic rule to remember here is to invest during a crisis because the lesser you pay, the lower your risks and the higher your potential return values will be.
Types of Investments I Can Do with CPF Investment Scheme CPFIS
With the CPF Investment Scheme CPFIS, you are permitted to invest in specified products. The complete details of each are provided in the website of CPF
However, below we have a list for you with each product name indicating if it can be invested through OA or SA.
Note that the arrangement of the product starts from the investment with the lowest risk to the highest:
- Singapore Government Bonds: CPFIS-OA and CPFIS-SA
- Treasury bills: CPFIS-OA and CPFIS-SA
- Annuities: CPFIS-OA and CPFIS-SA
- Endowment policies: CPFIS-OA and CPFIS-SA
- ETFs: CPFIS-OA, only the lower-risk ones for CPFIS-SA
- Unit trusts: CPFIS-OA, only the lower-risk ones for CPFIS-SA
- Investment-linked products: CPFIS-OA, only the lower-risk ones for CPFIS-SA
- Fund management accounts: CPFIS-OA only
- Selected retail bonds: up to 35% of investible savings in OA only
- Shares: up to 35% of investible savings in OA only
- Property funds: up to 35% investible savings in OA only
- Gold ETFs: up to 10% of investible savings in OA only
- Other gold products: up to 10% of investible savings in OA only
I Made Up My Mind… Now, How do I Start?
It is easy to start your investments using CPF. However, depending on which account you choose to buy your shares with, the procedures differ.
Refer below for the course of action required for the corresponding account you want to buy your products with. With CPFIS-OA, you would have to open a CPF Investment Account with Singapore local banks namely, DBS, OCBC or UOB.
Normally, you can open a CPF Investment Account with whichever bank you prefer because fees and charges are the same for all three.
This account is to further aid you in letting the bank you signed up with administer and manage your funds.
Nonetheless, you are still going to need a brokerage account for the actual investment. That is up to you to choose which bank, it does have to be the same one.
Regarding the fees and charges imposed by the bank, UOB seems to be the cheapest because they only charge $2 per 1,000 shares or part thereof and a maximum 20$ per transaction.
While the other two banks charge $2.50 and a maximum of $25 respectively. As an example, if you opened a CPF Investment Account with OCBC, and you buy bonds from selected retailers, the retailers would liaise with OCBC regarding your purchase.
With CPFIS-SA, you are not required to open an account with any bank, you can get in contact with your investment product provider right away and start there.
It is encouraged for you to start with searching for a fund management company or investment administrators first before making your purchase. For an easier way, you may register on the line with no hassle of going to the bank and waiting to be entertained.
Register your CPF Investment Account through the online form provided on the website of your product provider. In conclusion, if you are still in need of assistance, you may directly come to the branches of the banks and product providers for face-to-face service.
Generally, you will be required to bring these documents with you.
- A printed online registration form
- Self-identification documents; NRIC for local Singaporeans and PR, Passport or EP/WP for foreigners
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