Singapore: Stocks, REITs and ETFs in the CPF Investment Scheme

The Central Provident Fund Investment Scheme (CPFIS) allows investors to invest their CPF savings in a wide range of investment products.

With the risks of investing, the CPF Board states that investors should exercise prudence when utilising CPF savings under the CPF Investment Scheme. There is no guarantee that investments will always be profitable or that investment products included under CPFIS will always earn profit. Investors should consider the suitability of the products according to their own risk appetite and investment objectives.

For the CPF-Ordinary Account (OA), CPF members are currently receiving a floor rate of 2.50% as legislated by the CPF Act. This is because the current market-related interest rate based on the 12-month fixed deposit and month-end savings rates of the major local banks amounts to less than 2.5%. The computed market related CPF interest rate, derived from the major local banks’ interest rates for the three-month period, 1st August 2011 to 31st October 2011, worked out to be 0.31% per annum.

Savings that are held in the Special and Medisave Account (SMA) currently earn either 4% or the 12-month average yield of 10-year Singapore Government Securities (10YSGS) plus 1%, whichever is the higher. An additional 1% interest will continue to be paid on the first $60,000 of a member’s combined balances, with up to $20,000 from the Ordinary Account (OA).

Interest rates are largely determined by inflation and economic growth. According to the Ministry of Trade and Industry, Singapore’s Consumer Price Index (CPI), an indicator for inflation rate, rose at a more moderate rate of 5.5 per cent in December compared to the same month in the previous year on the back of a smaller increase in the cost of private road transport. For the full year of 2011, inflation stood at an average of 5.2%. The Monetary Authority of Singapore reported an expectation of inflation in 2012 to average between 2.5% and 3.5%. With low interest rates on bank deposits, more investors are seeking higher yielding instruments to prevent erosion of their savings from inflation. As investors continue to seek yield, the adjusted interest rate for inflation is often referred to as the real interest rate.

The table below provides a composite list of the 30 stocks that form the Straits Times Index (STI) and the 32 stocks that form the MSCI Singapore Index (SiMSCI). The stocks highlighted in green are part of the list of stocks included for investment by CPFIS. The list of stocks are sorted according to their respective dividend yields for the year 2011. Dividend yields were as high as 8.69% (Singapore Telecommunications Ltd).

As much as 20 out of the 35 constituents provided dividends of 2.5% and more for the year of 2011. Investors should note that the total return of the stock investments include the dividend distributions to shareholders as well as their price performances. Please note, prices of stocks may move up or down and if their price performances have been negative, it may negate the positive dividend yields received.

Source: Bloomberg

Specified Investment Products

As part of the Monetary Authority of Singapore’s (MAS) initiative to introduce stronger measures and enhance requirements to further safeguard the interests of individual investors, Structured Warrants have been categorised as Specified Investment Products (SIPs).

SGX SIPs have structures, features and risks that may be more complex in nature. The MAS now requires broking firms to ascertain whether an individual investor has the relevant knowledge and experience to understand the risks and features of SIPs before allowing the individual to open an account to trade SIPs listed on both securities and derivatives markets.

SGX has introduced two online initiatives, a Customer Account Review Module and an Online Education programme, to support individual investors in their understanding and trading of SIPs listed on SGX.