Moneytalk

Raising the Threshold for CPFIS-SA Investment

2010-03-16T21:28:00.004+08:00

Raising the Threshold for CPF Investment Scheme-Special Account Investment

From 1 July 2010, the first $40,000 of members’ Special Account balances will no longer be allowed to be used for investments. Given the higher risk-free interest rate on the Special Account, it is better to be more conservative than to subject these savings to the uncertainty of CPFIS returns.

There is no change to the requirement for members to set aside $20,000 in the Ordinary Account before they can invest their Ordinary Account monies.

(Taken from the CPF Board's official website)

That is bad news for investors who can potentially generate a higher return on their funds sitting in their CPF SA. However, that group of investors belongs to the minority. For the majority, the interest for the CPF SA is already very decent if you take into account that the return is risk free.

Definition of Critical Illness

2010-03-14T15:37:00.000+08:00

Critical illness plans are insurance policies which will pay out a sum of money if the policyholder is diagnosed as having a critical illness. However, if you are having such a plan, have you ever seen the definition of the critical illnesses which must be met first before the full sum of money will be given out to you ? I managed to find the definition of the critical illnesses on the website of the Life Insurance Association of Singapore here and we can take a look at some of the definitions.

1 Major Cancers
A malignant tumour characterised by the uncontrolled growth and spread of malignant cells with invasion and destruction of normal tissue. This diagnosis must be supported by histological evidence of malignancy and confirmed by an oncologist or pathologist.

The following are excluded:
• Tumours showing the malignant changes of carcinoma-in-situ and tumours which are histologically described as pre-malignant or non-invasive, including, but not limited to: Carcinoma-in-Situ of the Breasts, Cervical Dysplasia CIN-1, CIN-2 and CIN-3;
• Hyperkeratoses, basal cell and squamous skin cancers, and melanomas of less than 1.5mm Breslow thickness, or less than Clark Level 3, unless there is evidence of metastases;
• Prostate cancers histologically described as TNM Classification T1a or T1b or Prostate cancers of another equivalent or lesser classification, T1N0M0 Papillary micro-carcinoma of the Thyroid less than 1 cm in diameter, Papillary micro-carcinoma of the Bladder, and Chronic Lymphocytic Leukaemia less than RAI Stage 3; and
• All tumours in the presence of HIV infection.

I am not legally or medically trained so my apologies if I have failed to misunderstand any of the terms clearly. It is stated above that Carcinoma in situ is excluded from the definition of the critical illness. A search on Google for this term reveals that it is cancer that involves only the place in which it began and that has not spread. Thus, if you have cancer which have not spread, do not be surprised if you cannot receive any payout from your critical illness plans.

14 Major Burns
Third degree (full thickness of the skin) burns covering at least 20% of the surface of the Life Assured’s body.

Here is another definition from the definitions of critical illnesses. Notice that the definition of major burns is defined very clearly and concisely. Thus, any major burns that does not meet the above definition may result in non-payment of the policy.

As such, you may wish to take a closer look at the critical illness riders or plan if you are buying one and ask your financial adviser for a more detailed explanation.

Individual investors' SGS holdings to shift to CDP

2010-03-03T22:38:00.002+08:00

Individual investors' SGS holdings to shift to CDP

Taken from The Business Times on the 2nd of March, 2010

THE Singapore Exchange (SGX), DBS Bank, United Overseas Bank (UOB) and OCBC Bank yesterday announced that all Singapore Government Securities (SGS) holdings of individual investors will be migrated to the Central Depository (CDP) for safekeeping starting from next month.

The SGS migration exercise is part of the Monetary Authority of Singapore's (MAS) initiative to make the SGS market more accessible for individual investors.

Other elements of the SGS migration exercise include consolidating details of investors' SGS and securities holdings into a single CDP account; making SGS valuations and details of investors' SGS holdings available online at www.cdp.com.sg; making available day-end SGS/ T-Bill prices at www.sgx.com; and allowing investors to freely buy or sell SGS through any SGS agent bank, to improve their access to the most competitive SGS market prices.

Currently, individual investors are restricted to dealing SGS only with their agent bank.

The SGS migration exercise will be conducted from April 1 to June 30. SGX, DBS, UOB and OCBC Bank will contact investors with more details on the exercise.

During the exercise period, SGX will waive the CDP transfers fees in relation to the SGS holdings being migrated. SGX will also waive fees for the SGS holdings services for a three-year period from April 1, 2010. SGX does not currently charge fees for CDP account opening.

CDP account opening fees and the securities and/or SGS holding fees are subject to a review process that SGX conducts every three years.

Gains from stocks may be taxable by IRAS

2010-02-28T22:40:00.003+08:00

All these while, I thought that capital gains from the sale of shares or financial instruments will not be taxed by IRAS. However, if you look closely at the IRAS website, it states that the gains may be taxable if the individual is trading and that depends on the frequency and volume of transactions and the interval between the purchase and sale. Well, if you are investing, you are not likely to fall under this category since the holding period of the shares will be rather long. On the other hand, those who do trading are more likely to fall under this category. Another disadvantage besides the expenses incurred for brokerage charges due to the frequency of trades.

Make full use of interest free study loan

2010-02-22T20:53:00.007+08:00

If you are or you have kids who will be entering university soon, you should take advantage of the interest free study loan and tuition fee loan and use the funds to invest. The returns that are generated can be used to offset the cost of a university education slightly.

Fresh undergraduates who will be entering into any of the 3 local universities which includes NUS, NTU and SMU are usually able to take a tuition fee loan of up to 90% of their course fee. Depending on the selection of course, it ranges from around $6500 for most courses such as Engineering or Science to slightly less than $19,000 for medicine. Subsequently, they may be eligible to take up a study loan that can pay for the remaining 10% of their course fee and a living allowance of $3,600. For most courses, this means that the recipient can receive up to a potential amount of at least $10,000. Throughout the entire course of study, interest will not be charged on the loan amount. As such, if you have enough funds to pay off the tuition fee, my suggestion is that you should not pay it off straightaway but keep it to generate some returns and try to get the study loan too.

Let us consider an example. An undergraduate will be entering into an Engineering course in NUS soon and he is able to secure both the tuition fee loan and study loan. The undergraduate has enough funds to pay off the tuition fee but he will be taking up the tuition fee loan and the study loan. Currently, the course fee for Engineering at NUS is $6,620. Taking into account of the study loan, he will be receiving a total of $6,620 + $3,600 = $10,220 at the start of each year for the entire course of study. Since the preservation of the tuition fee is of utmost importance, the funds that he has received will be invested in a principal guaranteed or risk-free investment such as SGS bonds, structured deposits or fixed deposits. For the sake of illustration, we assume that we are able to invest the funds yearly with a return of 1.0% per annum.

Year 1

Amount received = $10,220

Interest received at end of Year 1 = $10,220 x 1%

= $102.20

Total amount at the end of Year 1 = $10,220 + $102.20

= $10,322.20

Year 2

Amount received = $10,220

Total amount at beginning of year 2 = $10,322.20 + $10,220

= $20,542.20

Interest received at end of Year 2 = $20,542.20 x 1%

= $205.42

Total amount at the end of Year 2 = $20,542.20 + $205.42

= $20,747.62

Year 3

Amount received = $10,220

Total amount at beginning of year 3 = $20,747.62 + $10,220

= $30,967.62

Interest received at end of Year 3 = $30,967.62 x 1%

= $309.68

Total amount at the end of Year 3 = $30,967.62 + $309.68

= $31,277.30

Year 4

Amount received = $10,220

Total amount at beginning of year 4 = $31,277.30 + $10,220

= $41,497.30

Interest received at end of Year 4 = $41,497.30 x 1%

= $414.98

Total amount at the end of Year 4 = $41,497.30 + $414.98

= $41,912.28

Total amount received = $10,220 x 4

= $40,880

Return on investment = $41912.28 - $40,880

= $1,032.28

Percentage reduction in tuition fee = $1032.28 / ($6,620 x 4)

= 3.9%

From the above calculation, it can be seen that the funds can be used to offset the tuition fee by 3.9% using a investment return rate of 1.0%. I do think it is possible to get a higher interest rate of slightly above 1%. Although the amount saved is not a lot, this offset of tuition fee seems to be 'free' as all we are doing is to generate interest on the tuition fee loan and study loan during the course of study in which interest is not charged on these loans. So this is something which you may wish to consider if you or you have any children who are entering into a university soon.

Historical STI market correction

2010-02-14T11:07:00.003+08:00

Fundsupermart has an excellent article here on the statistics of the past STI market corrections which I have been feeling too lazy to compile. The statistics were compiled from 1987 to 2007, spanning 4 bull markets with the exception of a partial recovery from the technology recession in 2001 being stopped by SARS and the Gulf War.

Distribution of corrections:

(Taken from fundsupermart)

Median level of corrections : -8.6%
Average level of corrections : -10.6%

Duration of corrections

For corrections of 4% from any peak,

Takes place once around 155 days or around twice each year
Average correction last 46.5 days
Median correction last 24 days

Going by the above statistics, the current correction in the STI market is probably over the market has corrected by around 8.5% and this correction has lasted for around 25 days. Congratulations to those who have bought in or added on to their positions. Meanwhile, it will be prudent to wait for the next correction.

Stock market correction is an opportunity

2010-02-06T23:02:00.002+08:00

One month can make a lot of difference. I remembered just a month ago, the stock market was still very optimistic with analysts calling for a bullish market for 2010. On the contrary, I adopted a much more conservative and cautious view that this year will not be a repeat of the previous year of phenomenal growth as stated in my last post of 2009 here.

The highest closing level of STI so far for this year was made on the 11th of January at 2933.53 while the latest closing level made on this Friday was 2683.56. Thus STI has corrected by around 8.5% so far. Given that the economy is in the recovery phase and it is no longer in any recession, I doubt we will see any plunge of more than 30%. The level of around 3000 made last month was way too optimistic as mentioned before previously in my post since when the economy was at its peak previously, STI reached a level of 3900 only. As such, this correction will be a excellent time to add on to your current positions. I do hope that this correction will carry on further.

2 weeks hiatus

2010-01-24T22:54:00.002+08:00

I will be going on a trip for the next 2 weeks so I will be not be updating my site. Meanwhile, the recent correction in the market may prove to be a fantastic time to add on to new positions so do stay focused on the stock market.

Car insurance premium

2010-01-16T23:05:00.006+08:00

I saw a very useful post on the Hardwarezone forums under the Cars & Cars section on what factors will contribute to the premiums for car insurance.

How premiums for car insurance is calculated

Premium is calculated based on the following factors

1) Age Group This refers to the age of the car owner. Most company has similar age group factors.

18 to 21 - super expensive
21 to 25 - quite expensive
26 to 30 - a bit expensive
31 to 65 - safe zone

2) Driving Experience This refers to how long have you had your driving license and has nothing to do with your actual driving experience. This is measured in number of years.

0 to 1 - super super expensive
1 to 2 - super expensive
2 to 4 - quite expensive
more than 4 - safe zone (most insurance companies will charge the lowest rate for drivers with 4 or more years of driving experience, though some other insurance companies will give the lowest rate for drivers with 3 or more years of experience - eg. OAC under Great Eastern)

3) Job occupation (Indoor/Outdoor) This refers to the nature of work such as desk bounded jobs or sales jobs.

Indoor - cheaper
Outdoor - more expensive

4) NCB Discount This refers to No Claim Bonus discount or some insurance companies may term it as NCD (No claims Discount). You will get 10% NCB for every year which you do not have an accident. The maximum NCB that you can get is 50%.

For example, your car insurance premium cost $2000 (before NCB) and you have 40% NCB, your premium would be $1284 {[2000 - (2000 * 40)] * 1.07} with GST. Hence the higher the NCB, the lower your premiums will be.

5) NCB Protector This is applicable to people with 50% NCB. In the event of 1st accident in that policy year, your NCB will remain at 50%. After which, the 2nd accident will cause your NCB to be reduced to 20% (50% - 30%) . If you are very unlucky and meet with a 3rd accident in a year, your NCB will be reduced to 0% (20% - 30%, you cant get -10% so it will be 0%)

It is important to note that NCB protector is only effective if you renew your car insurance with the same insurance company. If your car insurance is with company A and your NCB is 50%, after the 1st accident which is due to your fault, you will still get 50% NCD as you got the NCB protector upon the renewal. However, instead of renewing my insurance with company A, you go with company B, you will only be entitled to 20% NCB.

6) Safe Driver Discount This is an additional 5% discount if you do not have any traffic offense or demerit points for the past 2 years. You only get this additional 5% when you have a minimum of 30% NCB.

For example, your car insurance cost $2000 (before NCB) and you have 30% NCB and safe driver discount, your premium would be $1423 {[2000 - (2000 * 30%)] * 0.95 * 1.07} with GST.

7) Engine Capacity (cc) This refers to the capacity of your car engine in cc. The lower the cc, the lower the premium.

8) Year of Manufacture This generally means the year which your car is made/registered. Generally, the older the car, the cheaper the premium

9) Body Type This refers to the type of vehicles such as saloon, MPV, SUV etc. Some insurance companies will charge a higher premium for a certain type of vehicle.

10) Engine Type This usually refers to normal or turbo car engine, It's important to know that most car insurance company will impose a higher car insurance premium on turbo cars. Some insurance companies will even reject cars with turbo engines.

11) Gender This is dependent on different insurance companies. Some insurance companies will charge a lower premium for male drivers while others will charge a lower premium for female drivers. For some other companies, the rate remains the same.

11) OPC Car OPC also know as off peak car (red plate). Some companies give a 5% discount for OPC (eg. NTUC) while other companies does not.

There are a few implications about this factors. Firstly, one should always try to secure a driving licence as early as possible since the number of years that you had your licence irregardless of your actual driving experience plays a part in the premiums. Secondly, it is advisable to get a car after 30 since any age below the age of 30 will result in an increased premium. Thirdly, getting a car with a lower engine capacity will not only lower your insurance premiums, but it will also result in a lower road tax, resulting in savings for both areas.

Always pay yourself first

2010-01-12T22:55:00.000+08:00

Always pay yourself first. This is something which we can do as a start to manage our finance prudently. I do think that the majority of us tend to spend their salary first once they receive it. Only at the end of the month, the remaining amount will then be transferred to a savings account. If you actually think of it, we are actually using the money to pay others first before we pay ourselves. In some cases, the savings account is not really one since funds are frequently transferred from it to cover for the shortfall that may occur in any month or to spend on big ticket items. Thus in the long term, the savings is likely to remain at a stagnant level.

As such, it can be hard to pay yourself first. However, there are a few steps which you can do. Firstly, you should make your savings account as inaccessible as possible. Preferably, there should be no ATM card linked to this account so there will be no chance of you withdrawing cash from the ATM from this account. Secondly, establish only one link to your savings account to other accounts and that account should be the account which your salary will be credited to. Thirdly, reduce the transfer limit of this savings account to the minimum so that you will not be allowed to transfer a large sum of money from this savings account. Lastly, you should set up an automated instruction in your internet banking to transfer a set amount of money from the account which your salary will be credited to, on the payday itself. This ensures that you get to save a sum of money first before you get a chance to spend your salary. Hopefully, this ensures that your savings will grow to a substantial amount.

S'pore investors more upbeat

2010-01-05T22:25:00.001+08:00

S'pore investors more upbeat
Koh Hui Theng
5th Jan 2010, my paper

SINGAPORE residents are welcoming the new year with new-found confidence, thanks to an improving economic outlook and positive market sentiments.

Instead of parking their savings in cash, many are turning to high-yield equity products like stocks, mutual funds and unit trusts - suggesting a return of risk appetite.

The third annual Citi Financial Quotient (Fin-Q) Survey 2009 - which polled 400 Singaporeans online in October - showed four in 10 who stopped investing during the financial crisis have either resumed doing so or intend to be back once the right opportunity arises.

Another four in 10 had stayed invested during the tough times.

And equity instruments top these investors' wish-list. One in two opted for stocks in their portfolios while three in 10 zoomed in on mutual funds and unit trusts.

In contrast, only one in five said they would continue to hold their savings in cash or near-cash equivalents like term deposits and Treasury bills.

Despite the robust property scene here, just one in five said they intend to buy real estate for future sale or rental yield.

If given extra cash, one in two added that they would pick stocks, shares or unit trusts to up their net worth.

Citibank (Singapore) head of wealth management Shrikant Bhat said the increased risk appetite indicates that confidence and stability are returning to the markets.

"Investors who had sought refuge in cash and steady-yield products are now seeking higher returns and ways to better grow their money," he said.

Three in five said they were quite confident about the country's economic future despite their finances being affected by the crisis.

The improved outlook resulted from across-the-board growth in 2H09, as various stimulus packages kicked into effect and risk aversion ebbed.

But he expects uneven growth this year as emerging markets and sectors like healthcare and pharmaceuticals outperform their counterparts.

Still, people seem to have learnt lessons from one of the worst recessions in history.

Despite being more willing to invest, they are proceeding with greater care.

A quarter of those polled said they are a lot more cautious about making investment decisions now, compared to a year ago.

Two in five said they are a little more cautious.

Two in five also admitted they have saved more in the past year.

Meanwhile, many are concerned about rebuilding their savings, meeting monthly expenses and accumulating greater retirement savings.

Two in five reported that their retirement savings suffered serious losses.

A vast majority, seven in 10, felt their Central Provident Funds (CPF) are insufficient for a comfortable retirement.

Of these, a quarter said that CPF will provide very little retirement income.

Almost half said their CPF will offer only some income to fund their golden years.

kohht@sph.com.sg

HDB resale prices climb 3.8% to hit record high in Q4 2009

2010-01-05T22:21:00.002+08:00

HDB resale prices climb 3.8% to hit record high in Q4 2009
By Cheryl Lim/Wong Siew Ying, Channel NewsAsia 04 January 2010

SINGAPORE: Prices of resale Housing and Development Board (HDB) flats rose 3.8 per cent in the fourth quarter of 2009, reaching the highest level since 1990, when records of such data began.

The Resale Price Index of public flats stood at 150.7 in the fourth quarter of last year. But some said that spiralling prices will not deter potential buyers.

Despite the record high prices, one real estate consultant said prices of most of the larger HDB units have not increased dramatically.

Donald Han, managing director, Cushman & Wakefield said: "If you look at the overall pricing for the four- and five-room flats, they are all still within the norm, and very much far apart from the kind of headline transaction news that you get of about S$700,000, S$800,000 in that sense."

According to some others, resale flats have strong potential to rise further due to demand from newly formed families and permanent residents.

Nicholas Mak, real estate lecturer, Ngee Ann Polytechnic said: "Going forward the case of price growth is not going to be 3 to 4 per cent every quarter. Otherwise, we could see very high unsustainable levels for the HDB resale market.

"It is more likely going to grow at a pace of between, perhaps eight to maybe as high as 15 per cent for the whole of 2010."

The HDB said it will continue to launch more Build-to-Order (BTO) projects this year, if there is a sustained demand for new flats. And it said it will continue to ensure that there is an adequate supply of flats to meet the prevailing housing needs.

For a start, 1,300 BTO flats in Choa Chu Kang and Hougang will be offered for sale on Tuesday. But it will take up to four years before the BTO flats are ready.

So for those who cannot wait, resale flats are one option, thereby, driving up demand and prices.

The HDB will release its detailed resale price data and public housing data for the fourth quarter on January 22.

Returns for 2009

2009-12-31T22:39:00.002+08:00

Today is the last day of 2009 and it is time once again to review the return for this year. This year has been a good year for me since I bought quite near the lows of the stock market and watch my portfolio rebound with such a ferocity that was totally unexpected by me. I only started to keep track of my portfolio systematically slightly more than a year ago by keeping track of all my transactions and dividends inclusive of any corporate actions. After which, I use the Excel function of internal rate of return to compute my annualized return. My target is to achieve an annualized return of at least 20% inclusive of reinvested dividends over the next one to two decades.

Currently, my annualized return stands at 53.4%. Of course, I do not expect to achieve this kind of return in the long term. This return is partly skewed by the excellent performance of the stock market this year.

Moving on to the return of the stock market for 2010, I'm not very optimistic about the coming year. This view of mine goes against the view of many experts and the general sentiment of the stock market currently. From the beginning of 2009 until now, STI has gained a total of 58.4% and it is currently close to 3000 points. If we were to consider the optimistic view that STI will gain another 30%, it will be around 3900 points. Linking this back to economy, 3900 points was when the economy was at its peak. Given that the economy is starting to show signs of stability and the days of phenomenal growth will not be back so soon yet, I don't think that the stock market will do extremely well this coming year. Of course, my opinion can be wrong so time will tell.

I can foresee that for 2010, I will be holding on and building up my capital and will take advantage of any significant corrections in the market by adding on additional positions. Otherwise, I will probably be monitoring the companies in my portfolio and researching on new companies that meet my investment criteria.

Lastly, I wish everyone a happy new year and all the best for your investments in this coming year !

Medishield

2009-12-29T22:05:00.000+08:00

Medishield is an insurance scheme that is operated by the CPF board and this scheme is designed to prevent one from incurring huge medical expenses under certain conditions. It is designed to cover a large portion of medical bills incurred under class B2 or C wards only, in restructured or government hospitals only or selected outpatient treatment. As such, if you wish to stay in a higher class ward, you may have to incur a much larger portion of your medical bill. Furthermore, there are limits associated with the various items. Some of the details, which are taken from the CPF website, are given below.

Medishield runs on a deductible and co-payment or co-insurance system. Basically, the medical bill that is payable is divided into these two portions. Deductible is the amount which you will need to pay before Medishield will pay for your medical bill. This typically range $1,000 to $3,000 depending on the class of ward which you stay in and your age and you only pay for the full deductible once every policy year which is defined as the commencement and renewal date of your Medisheid cover.

Subsequently, you will have to pay for a portion of the remaining amount of medical bill after paying the deductible which is known as the co-payment or co-insurance. Typically, this ranges from 10% to 20% of the remaining amount of medical bill after paying off your deductible. The exact amount of the deductible and co-insurance are given in the table below, as taken from the CPF website.

So how does one get covered under the Medishield ? As taken from the CPF website, Medishield is extended automatically to eligible Singaporeans and Singapore Permanent Residents under the following situations.

(i) If their births or permanent residencies were registered after 1 December
2007;
(ii) If they are registered at national schools as at 1 May 2008, 1 May 2009, 1
May 2010, 1 May 2011, 1 May 2012, 1 May 2013 or 1 May 2014;
(iii) When they make their first CPF contribution after turning 16 years old; or
(iv) If they get married in Singapore.

Otherwise, you can apply for Medishield by logging in to your CPF account and submit an application online. This can also be done for your dependents who are below 16 years old. Do bear in mind that you will have to declare any existing and past medical conditions in submitting your application and the Medishield may not cover such conditions thus it is always important to apply when you are still healthy.

What I have done here is to give a summary of what one needs to know regarding Medishield and this is by no means, comprehensive enough. The CPF board has an excellent article regarding Medishield and its related FAQs and the link is available here.

An hospitalization and surgical plan or in short, H&S plan should be the very first insurance plan that you should buy and Medishield is a very basic type of H&S plan. There may be situations where a class B2 or C ward is not going to meet your needs adequately and you may be forced to upgrade to a higher class ward or switch to a private hospital due to reasons such as availability of better medical treatment or shortened waiting time for treatment. As such, Medishield may not much of a help as it is designed to cover a large portion of your medical bills in a class B2 or C ward only. However, there are other options available and this can includes the purchase of a Medishield-approved Integrated Shield plan which I will blog about it in the future.

Unit trust fees slashed to woo investors

2009-12-20T22:57:00.000+08:00

Unit trust fees slashed to woo investors
DBS, Fundsupermart among those which now charge just 1%
By Sylvia Paik
(Taken from the Straits Times on 19th December 2009)

A PRICE war seems to have broken out in the unit trust industry in Singapore, with at least three fund distributors now slashing their sales charges to just 1 per cent.

DBS Bank started the ball rolling in early October when it cut its sales charge on all unit trusts to 1 per cent - a move the bank says has already resulted in a two-fold increase in unit trust sales.

Last Tuesday, online fund distributor Fundsupermart.com reduced its sales charge for its 11 best performing funds over a period of three years to 1 per cent.

And The Straits Times has learnt that even though it has not advertised this, Standard Chartered Bank (Stanchart) is also offering a 1 per cent sales charge to selected customers quietly.

Unit trusts are typically sold by banks, insurers, stockbrokers and other independent financial advisers.

These distributors levy an upfront sales charge, which is deducted straightaway from the principal amount an investor puts into a unit trust.

The traditional sales charge in a face-to-face transaction with a customer is usually 5 per cent, but this has been bettered in recent years by a host of cheaper online distributors.

Most online distributors charge between 1.5 per cent and 2.5 per cent, with some going as low as 1 per cent if the customer invests a large amount of money.

At a flat 1 per cent for any investment amount, the three distributors are undercutting the competition significantly.

Mr Jeremy Soo, DBS' managing director and head of consumer banking in Singapore, said the bank slashed the upfront sales to 'give customers greater value for their investments'.

'As part of our continuous efforts to demonstrate product transparency and suitability, and to give customers greater peace of mind when investing, DBS also began offering customers 14 days to review their unit trust investment decisions - seven days more than the industry standard,' he said.

Both initiatives have been well-received by customers, Mr Soo said.

At Fundsupermart, unit trust sales are up 34 per cent since the 1 per cent sales charge was introduced. Its general manager, Mr Wong Sui Jau, said its latest promotion was not a response to DBS' price cuts.

'We have always had ad hoc promotions on and off on a regular basis, and we usually base our promotions on certain themes which are often related to our research outlook,' he said.

Stanchart, a top fund distributor here, continues to charge a sales fee of 'up to 5 per cent', said its spokesman. But The Straits Times understands that the sales charge has been reduced to 1 per cent for some customers.

In response to queries, Ms Janice Poon, who is head of the bank's advisory and segment strategy in Singapore and Malaysia, would only say that the bank reviews its fees and charges periodically.

'Currently, there is no change to our unit trust sales charges. We continue to see a healthy demand for our unit trust products,' she said.

OCBC Bank's head of wealth management in Singapore, Mr Lim Wyson, also said the bank maintains its unit trust sales charges at 'competitive levels'. It charges up to 5 per cent at its branches, but fees are lower - about 2 per cent to 3 per cent - on its online portal finatiq.com.

But cost is not the only factor in selling these investments, Mr Lim cautioned.

'We believe that customers look at factors beyond price, such as their investment strategies, past performance of the fund, track record of the fund manager, among others.'

Some seasoned unit trust investors told The Straits Times the reduced rates do make a big difference.

Mr K. Yong, who has had more than $300,000 invested in unit trusts, said: 'Basically, the unit trust distributors will all give financial advice, but we will look for the cheapest sales charge for the same unit trust.

'I am also considering other options like exchange traded funds, which are more cost-efficient as I do not need to incur any sales charges.'

But others maintained that they are willing to pay higher sales charges if their financial planners provide sound advice.

'Basically, I buy whatever my financial planner recommends, and the sales charge doesn't really bother me,' said Mr S. Cheng, who buys unit trusts for retirement planning.

sylviap@sph.com.sg

Exchange traded note launched in Singapore

2009-12-16T20:34:00.001+08:00

Exchange traded note launched in Singapore
(Taken from the Straits Times on the 16th December 2009)

A new product class similar to exchange traded funds (ETFs) has been launched in Singapore — the first of its kind in Asia outside Japan.

Called exchange traded notes (ETNs), the first of this new breed of product was listed by Barclays Capital on the Singapore Exchange (SGX) last Friday, with more expected in the coming years.

Denominated in US dollars, the first ETN trades in units of 100 and has a yearly fee of 0.75 per cent.

So far, there has been muted response. No trades were done yesterday. Its quoted selling price on the SGX was US$40.86.

Referring to the ETNs, Philippe El-Asmar, Barclays Capital's head of investor solutions, said: “They provide investors with simple, transparent, cost-efficient instruments that provide access to difficult-to-reach markets with the ease of trading through an exchange.”

ETNs are senior, unsecured debt securities linked to the total return of a market index. They were first offered in the United States in 2006 by Barclays Capital under its iPath ETN platform.

According to El-Asmar, iPath ETNs in the US have attracted more than US$5 billion (RM17 billion) in market capitalisation with over US$80 billion in volume traded since their inception.

The first ETN offered in Singapore is an iPath Dow Jones-UBS Commodity Index Total Return ETN, which gives retail and institutional investors a chance to gain exposure to a broad range of commodities during Asian trading hours.

Janice Kan, SGX's senior vice-president and head of product development, said: “The launch of this new product class broadens our suite of investment offerings, and will provide investors with cost-efficient access to the commodities asset class, and eventually a range of other asset classes.”

Perhaps the closest relations of ETNs are ETFs, which are baskets of stocks that typically track the performance of a stock market index. ETFs can also be theme-driven, focusing on certain asset classes or commodities such as gold or agriculture.

ETFs generally carry lower costs — zero sales charges and lower management fees — than unit trusts because they are passively managed.

They trade like stocks on the bourse, so one can buy and sell them at market prices during the trading day. They provide exposure to a variety of markets and offer greater diversification than shares.

ETFs have been growing in popularity in Singapore, with a total of 43 listed and a daily traded volume of S$18 million (RM43 million).

However, ETNs differ from ETFs in several ways. ETNs generally lapse after 30 years and do not yield dividends, whereas ETFs have no expiry date and some offer dividends.

ETNs carry no counterparty risk, unlike certain ETFs, which use derivatives. But ETNs carry an issuer credit risk, as they are debt obligations owed by the issuer to investors.

Correct expectations of medical insurance plans

2009-12-15T20:09:00.003+08:00

Puzzled by insurer's payout for medical claim

RECENTLY, my wife was hospitalised at Mount Alvernia Hospital for four days. Her medical bill came up to $7,995.15.

She is insured under Income's IncomeShield Plan MA, but the total payout by Income was a shocking $240.
I called Income to find out how it arrived at that sum and was told that technically the $7,995.15 was classified as "room and board", hence limiting the claim.

The $7,995.15 included a renal screen, bed charges, clinical consumables and supply, diagnostic imaging services, equipment use, laboratory services, outside hospital services, pharmacy cost, resident medical officer fees, treatment fee and doctor attendance fee.

Given a deductible of $4,000 per policy year and 10 per cent co-insurance, any man in the street would expect an insurance payout of $3,595.63. But this is not the case.

My wife has faithfully paid her premium for the past 15 years without a single claim and this is what she gets in return. I am writing this so the public is made aware of such pitfalls in their medical insurance.

For big insurance companies to cite a technicality as an excuse not to make a decent payout is in no way fair. I urge the Consumers Association of Singapore and leaders in the insurance industry to look into this loose definition of "room and board".
In my opinion, given my wife's good record, Income should honour the $3,595.63 payout as a goodwill gesture.

Lastly, I would like to ask the Central Provident Fund Board why only $450 a day can be used from Medisave for hospitalisation.

Ong Kok Lam

The above was written by a disgruntled medical policyholder by the low payout of the medical bills by NTUC Income and this was published in the forum section on the Straits Times last month. Someone by the name of paufurhs has given an excellent breakdown of the medical bill on the ST forum and why the insurer reimburse only $240 back and this is explained below.

In all "shield plans", regardless if it is CPF Medishield or the private shield plans from private insurance companies, "Room & Board" is broadly defined as expenses including meal charges, professional charges, investigations and other miscellaneous charges. In short, in includes any inpatient medical charges not relating to surgical expenses.

In the gripe letter, and from the description of the expenses, it is very obvious none of the expenses are related to surgery, and so they fall under one category - "Room & Board".

For those who can't figure out how a $7K+ bill can only be entitled to only a $240 reimbursement amount, I breakdown the calculations.

All "shield plans" are integrated with CPF Medishield, thus forming a 2-tier medical insurance plan. During claims, the insurer will calculate which tier will reimburse the most of the expenses incurred, and pay out from that tier.
Incidentally, FYI, a part of the "shield plans'" premiums are paid to CPF Board for the respective Medishield tier.

The bill incurred under the alleged "Room & Board" category was $7,995.15
The limit of claim under the Incomeshield MA tier is $690 per day.
Since patient was warded for 4 days, the max. claimable amount is $2,760.
The established deductible under this tier is $4,000.
As the claimable amount is below the deductible, there will be no payout under this tier of coverage.

Move this $7,995.15 to the Medishield tier.
The limit of claim under the Medishield tier is $450 per day.
Since patient was warded for 4 days, the max. claimable amount is $1,800.
The established deductible under this tier is $1,500 (for B2 ward and above, and for claimable amount between $1,500 to $3,000).
Therefore, the sub-balance after deductible would be $300 ($1,800 - $1,500)
(At this point of calculation, the patient must already bear $7,695.15)
The established co-insurance under this tier is 20% (for B2 ward and above, and for claimable amount between $1,500 to $3,000), which is computed as $60.
Finally, the reimburseable amount under this Medishield tier is $240 ($300 - $60)

The patient bears $7,755.15 ($7,695.15 + $60)

Since the CPF Medisave Account can only be used to pay $450 per day for non-surgical inpatient bills, the patient can only use $1,800 from Medisave to pay for the hospital bill.
The remaining $5,955.15 has to be paid in cash.

This is not the first time I have seen this type of cases appearing on the ST forum. The one thing that is rather similar in these cases is that one thinks that as long they have a medical insurance plan such as Medishield, they are entitled to a stay in any type of wards in any hospitals and they expect a large part of the medical bills to be reimbursed back through the medical insurance plan. Unfortunately, this is not true. One has to match the correct plan with the correct class of ward. In this case, the Incomeshield Plan MA which was originally the Medishield Plus A, ran by the CPF Board, is geared towards the coverage of bills in an 'A' class ward and below in a restructured hospital and Mount Alvernia Hospital is a private hospital. Another point is that this plan is not an 'as charged' plan and thus there are limits to the claims for each category. As such, do make sure that you know what you are entitled to under the medical insurance plan which you have subscribed to and in the unfortunate event that you need to be admitted to a hospital, choose the correct class of ward and hospital.

Genneva Gold

2009-12-10T21:30:00.000+08:00

There is a pretty interesting post with a few hundred comments on lioninvestor's site. The post was about a company called Genneva Gold, which exists in Malaysia and Singapore. The links to the company's website can be found here. In this post, there were a lot of comments that debate on whether this investment is true or not and there were a lot of heated arguments and debates.

In my opinion, Genneva Gold is likely to be a fradulent company. Firstly, the returns does not corresponds with the risk. It seems to be a high return and low risk investment and that is not possible at all. Secondly, the business model of Genneva Gold seems to be unsustainable. Not much is said about how is the profits of the company being generated. Without being profitable, Genneva Gold will not be able to last long.

There were a lot of interesting insights and detailed analysis made by various parties that explains on why Genneva Gold seems to be a scam. The strange thing is that many still choose to believe that Genneva Gold is workable and not a scam. This is where I think that the greed has blinded them and they choose only to look at the good side of things instead stepping back and take a serious look at this investment. Unfortunately, this is also the very same reason why I think that the majority of people are not likely to do well when it comes to the stock market.

Yearly stock market returns

2009-12-05T22:23:00.000+08:00

I took this off the Schroders investor handbook as I was taking part in their investment quiz. This chart is rather interesting as it shows that poor performance years are often followed by significant rises subsequently. That's why one should rejoice when the stock market is doing poorly as it offers a chance for investors to buy in. One thing that they don't mention is that poor performance years can be followed by another year of poor performance as seen by the negative year to year returns for 1973 to 1974 and 2001 to 2002.

Dubai debt payment delay

2009-11-28T22:31:00.002+08:00

Dubai under scrutiny after debt payment delay
(Taken from BBC News on the 28th November 2009)

Dubai's financial health has come under scrutiny after a major, government-owned investment company asked for a six-month delay on repaying its debts.

Dubai World, which has total debts of $59bn (£35bn), is asking creditors if it can postpone its forthcoming payments until May next year.

Dubai World has also appointed global accountancy group Deloitte to help with its financial restructuring.

The company has been hit hard by the global credit crunch and recession.

It was due to repay $3.5bn of its debts next month.

Put simply, everyone in the markets thought that, in the end, the federal government in Abu Dhabi would stand by all of Dubai's bad bets. Apparently, they won't.
Stephanie Flanders, BBC economics editor

The request for a delay in repayments led to major credit ratings agencies downgrading a number of state-backed companies.

Following six years of rapid growth, the Dubai economy has slumped since the second half of 2008.

This has led to Dubai property prices falling sharply.

The Dubai government said in a statement that the request to delay debt repayments also applied to property developer Nakheel, a Dubai World subsidiary.

"It's shocking because for the past few months the news coming out has given investors comfort that Dubai would most probably be able to meet its debt obligations," said analyst Shakeel Sarwar, of SICO Investment Bank.

Dubai is one of the seven self-governing emirates or states that make up the United Arab Emirates.

Analysts say the Dubai government has paid the price for a flamboyant economic model centred on foreign capital and giant construction projects.

Questions are now being raised about Dubai's ability to repay its debts, said the BBC's Middle East correspondent Jeremy Howell.

Some have speculated it is likely to turn to the more economically conservative Abu Dhabi emirate to bail it out.

Global credit rating agency Standard & Poor's, which rules on a company's or government's ability to repay its debts, said the announcement "may be considered a [debt] default".

Our correspondent said: "Standard & Poor's and Moodys immediately downgraded all six state-backed corporations in Dubai, downgrading some to junk status."

Junk is the term commonly used to describe bonds that are rated below investment grade by ratings agencies.

The Dubai World announcement was made on the eve of the Eid al-Adha Muslim festival, which will see many government agencies and companies close in Dubai until 6 December.

Past banks interest and loan rate

2009-11-25T23:19:00.004+08:00

The above statistics were taken from the website of MAS. It shows the different rates for the past 10 years such as the fixed deposit rate and SIBOR. As compared to the past, the interest rates for fixed deposits were much higher as compared to the present state. With interest rates at such a low level, this should dissuade anyone from putting their money into fixed deposits or savings account. Interestingly, finance companies do offer a slightly higher rate consistently than banks for the past 10 years and there are some finance companies which are covered under the Singapore Deposit Insurance Corporation, which covers your deposits up to $20,000.

Don't expect interest rates to rise

2009-11-23T21:28:00.004+08:00

Don't expect interest rates to rise: Experts
(Taken from the Straits Times on 23rd November 2009)
By Francis Chan

SAVINGS accounts have seen miserly interest rates of below 1 per cent per annum since 2001 - and people hoping for better yields ahead will be disappointed.

The rates are unlikely to rise - at least in the next six months, experts say.

Monthly average savings rates have been on a downward trend from January to last month. This means the annual average rate for this year is likely to dip below last year's already paltry 0.22 per cent.

Rubbing salt into savers' wounds - inflation is likely to rise next year.

Based on figures from 10 banks and financial institutions compiled by the Monetary Authority of Singapore (MAS), savings accounts earned an average of 0.22 per cent a year in January, before holding at just 0.16 per cent from July to last month.

This is a far cry from the 1.28 per cent savers used to get in 2000, which was the last time interest rates exceeded 1 per cent.

Such measly rates have caused long-time savers such as Mrs F.S. Sim, 31, to dump conventional deposit accounts for other investments.

'The rates for my DBS Bank savings account fell from 0.25 per cent to 0.125 per cent in July...After deducting fees and taking into consideration inflation, I think I might even lose money,' said the communications manager.

Industry experts agree, saying it does not make sense for people who are looking to grow their money to put their savings in a basic deposit account, because of the meagre interest rates.

'Depositing your money in the bank with such low rates can really be only for safekeeping and perhaps for some regular transactions,' said the president of the Association of Financial Advisers (Singapore), Mr Raymond Ng.

'In fact, if you leave it in there for a year, your savings might just get eaten up by inflation.'

Last week, the Trade and Industry Ministry raised its inflation forecast for next year to 2.5 per cent to 3.5 per cent, from 1 per cent to 2 per cent, in view of the recent revision in the annual values of Housing Board flats announced by the Inland Revenue Authority of Singapore.

The MAS, however, did not revise its underlying inflation forecast of 1 per cent to 2 per cent, as its figures excluded the cost of accommodation and private road transport.

One would have to go as far back as 1997, during the last Asian financial crisis when the annual average was 3.08 per cent, for a decent return.

But Mr Ng believes that interest rates of between 3 per cent and 6 per cent are a thing of the past.

'With the current interest rates, your funds will just remain idle and there are many people out there who still do not realise that,' he added.

Deposit rates typically fall along with the Singapore Interbank Offered Rate (Sibor), which is the rate at which banks lend to one another.

Sibor is the key factor that affects the rate that banks pay depositors. It has been hovering around 0.68 per cent, not far off the all-time low of 0.56 per cent set in June 2003.

Analysts also pointed out that Sibor is influenced by interest rates set by the United States Federal Reserve.

And since December last year, the US Fed has held its key federal funds rate at a record low of zero per cent to 0.25 per cent - to help pull the economy out of the worst downturn since the Great Depression.

All signs point to interest rates staying low for some time.

Kim Eng analyst Pauline Lee told The Straits Times: 'We're looking at interest rates to stay flat in the near term, perhaps until the first half of next year.'

Bankers cited another factor for the low rates. They said local banks are typically well-capitalised and hence do not need to attract deposits, even during the downturn.

The dismal amounts earned from bank interest over the years mean the impact on savers - if there were further reductions in rates - would probably be minimal.

For example, if interest rates for a savings account were cut by half from 0.25 per cent to 0.125 per cent, a deposit of $10,000 would earn only $12.50 less a year in interest.

Those wanting to eke out a better return, however, can turn to other options, such as promotional rates that offer higher interest of up to 1.25 per cent or more if certain conditions are met. These could include maintaining a higher minimum deposit amount for a fixed period of time.

Mr Ng, however, said those seeking higher-yielding alternatives would be better off putting their savings in money market funds.

Amount of housing loan for 1st home

2009-11-21T22:18:00.000+08:00

In an earlier post of mine, I talked about why couples should choose HDB for their 1st home here. If they decide to choose HDB for their 1st home, that will lead us to the question on what is the maximum loan amount they should take up for their housing loan ?

It is often suggested that the maximum housing loan one should take should comprise of a certain percentage of their income, say perhaps from 20% to 30%. That seems a bit too simplistic in my opinion thus I would be sharing my analysis on how much housing loan should one take up.

In my opinion, the most important criteria on the amount of housing loan one should take up is that it must be sustainable and affordable, taking into account of any future circumstances that may arise. So what do I mean by future circumstances that may arise ? Some circumstances may include a increase in the interest rate for those who are taking on variable rates housing loans from banks or retrenchment. With regards to retrenchment, most of us are dependent on our income from our work to pay the housing loan thus the amount of housing loan one should take up must also reflect this issue. It will be financially disastrous if we cannot afford to service the housing loan due to unemployment. Thus it will be important to set aside an amount of cash in the CPF account as a buffer.

To add on, I suggest that one should use their CPF to pay off their housing loan only and not use any additional cash. The reason is that the additional cash can be better utilized by placing them in investments such as an index fund or ETFs for the long run.

In short, the amount of housing loan one should take up should be capped at an amount which can be serviced by their CPF only with an additional amount of fund being left in the CPF to build up a buffer that can tide one through any changes in circumstances.

Let's consider a hypothetical example. A couple's combined monthly income currently stands at $6,000 and they wish to take up a housing loan from HDB to buy their 1st home.

Combined monthly income = $6,000

Monthly contribution to CPF Ordinary Account = 34.5% * 0.6667 * $6,000
= $1,380

After setting aside $180 per month as a buffer in the CPF Ordinary Account,

Amount available for housing loan monthly = $1380 - $180
= $1,200

Using the HDB calculator on the monthly instalment for housing loan here, $1,200 will be enough to service a loan of $300,000 for 30 years. Every year, there will be a contribution of $180 * 12 = $2,160 as a buffer to pay the monthly instalment of the housing loan.

Record $653,000 for HDB flat

2009-11-14T23:25:00.003+08:00

Record $653,000 for flat
By Jessica Cheam
(Taken from the Straits Times on the 14th November 2009)

A FOUR-ROOM Queenstown HDB flat has sold for $653,000, setting a new record for price per sq ft (psf), amid continuing red-hot demand for resale flats.

The buyers, a male Indonesian permanent resident and a Singaporean woman, could have bought a condominium unit in an outlying area for the price.

But they were won over by the location, just five minutes walk from Queenstown MRT station, and on the top, 40th floor of the block, with unblocked views of greenery from all windows.

The four-year-old 969sqft unit at Forfar Heights, Strathmore Avenue, sold for $68,000 above valuation - a level determined by an independent valuer.

This works out to $674 psf, smashing the previous record of $609 psf, achieved in January last year, by about 10per cent.

This may be an unusually high price but resale prices have been moving up.

Which ETFs on SGX are cash-based ?

2009-11-10T20:55:00.000+08:00

I have received a few queries on which ETFs on SGX are actually cash-based as compared to swap-based ETFs. As explained in a previous post here, swap-based ETFs carry an additional counterparty risk and have less transparency as compared to cash-based ETFs. As such, I have glanced through all the holdings of the ETFs that are listed on SGX. You can also find out for yourself by downloading their financial statements which are available in their annual reports or their quarterly reports or statements. Under these reports, the holdings of the ETF will usually be reflected under the portfolio statement. If the portfolio looks very different from the constituent stocks of the index that it is supposed to track, chances are that this ETF is not cash-based.

So how many ETFs listed on SGX are cash-based ? The answer is surprising low. Currently there are 42 ETFs listed on the SGX. The type of ETF for these ETFs are shown below.

Cash-based ETFs

ABF SG Bond ETF
CIMBFTASEAN40 100 US$
DaiwaFTShariaJ 100 US$
DBS STI ETF 100
STI ETF

Swap-based ETFs

All db x-trackers ETFs
All iShares ETFs
All Lyxor ETFs

I did not include GLD 10US$ as I'm not familiar with it although the prospectus seems to be suggesting that this ETF is holding physical gold indeed. The DIAMONDS 10 US$ and the SPDRS 10 US$ are inactive so I did not include these 2 ETFs too.

As you can see, only 5 ETFs listed on SGX are cash-based. The rest are mainly swap-based ETFs. This means that investors are only left with a few ETFs to choose from if they only wish to invest in cash-based ETFs.