Tuesday, July 23, 2013

My views on the new POSB Invest-Saver

Read the news in the morning and this new product jointly launched by SGX and POSB caught my attention.  I have just blogged about investing in ETFs and now there is a new product in the market. Have just checked from POSB website and I will summarise on the characteristics of this new product.

This POSB invest saver lets you invest in an index ETF from as low as $100/month. The index ETF used is the NIkko AM Singapore STI Exchange Traded Fund. This ETF tracks the Singapore Straits Times index similiar to SPDR STI ETF. In my previous post on "investing basics - Low cost index fund investing (passive investing)", I wrote about investing in SPDR STI ETF using philip securities share builder plan. You can read about it and compare against this POSB product.

Benefits of POSB Invest-Saver
1) Invest from as low as $100
This is beneficial for those who do not have a huge capital to start with

2) Low transaction cost
Sales charge is fixed at 1% per transaction. If you invest $100, sales charge is $1.

3) Dollar cost averaging
By buying every month, you can ride out the gyrations of the market. No market timing is needed. As an index fund goes up in the long run, the longer you invest in it, the smoother the returns

4) Easy to apply through ATM machine or online at POSB website.
No brokers involved and no complicated forms to fill.

In channel news asia, it was written that we can expect a return of 2-3% annually. I've checked on the fund factsheet of Nikko STI ETF. The 3 year annualised return for this fund was 5-6%. This fund also gives dividends of about 1-2% annually. The dividends payout by the fund will be credited into your designated debiting account.  If the returns is just 2-3% annually, it would not be that attractive to me as it barely covers the inflation rate in Singapore. I would think that the returns should be more than 3% judging from the funds performance

This product is beneficial to those who want to invest but do not have the capital or knowledge to do so. A return of 2-3% is better than putting it in the bank and the best thing is you can withdraw your money anytime. It is stated that no fees will be incurred when you sell your unit. This is subjected to change as indicated on POSB website. However in any investment, there are still risks involved. The returns are not guaranteed and you may still lose money in the short run. In the long run, investments generally return profits.

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22 comments:

  1. Remember, with 1% transaction fee, the expected returns would be offset by the same amount. That means, one could expect to obtain 1-2% returns compared 2-3% as stated.

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    Replies
    1. Hi harsha,

      Yes, the returns are quite low as stated. I have no idea why the news media put it as 2-3% when the fund itself can actually generate higher returns. Does the return include dividends? I'm curious as to how they derive the 2-3%. Definitely need to find out more.

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    2. Maybe they put it like that affter considering the 1% transaction cost which is alot in the long run. Yes wondering about the dividends and selling transaction cost too;)

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    3. Hi Anonymous,

      If the returns is after factoring in the 1% transaction cost, then it seems good. :)

      The dividends are credited into your account when paid and selling the units has no transaction cost currently.

      I quote from POSB website:

      "Monies from dividends, cash offers, rights issue and other corporate actions will be credited into your designated debiting account."

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    4. I see(: thanks for sharing. A good and responsible product by POSB.

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    5. Hi Anonymous,

      The news did say that many people are putting their money in the bank or in fixed deposits accounts which earn a very tiny interest. This is a worrying trend as money depreciates with inflation. Many singaporeans will find it hard to retire as they get older.

      Delete
  2. Hi,

    I think the reason why the returns are stated to be 2-3% is because of the effect of dollar cost averaging. When funds report their annualized returns, in this case a 3-YR annualized return of 5-6%, it generally refers to a base capital( ie lump sum investment in Year X) growing from a base year to the end of the time frame. When you dollar cost average, the upside is that in a bad year, you average out your losses but the downside is that in a good year, you will also average out your returns. That is, you smoothen your total returns because you will be buying into the fund at various price points, not just at the beginning of the year. Hope this helps :)

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    Replies
    1. Hi Dew,

      Thanks for your comments. I do have the same thinking like you. But to me, a return of 2-3% investing in an index fund is still too low. Capital is not guaranteed and may also have losses. Generally, index funds have better returns than that even if its done by dollar cost averaging.

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  3. Im just starting to jump into investment. So i guess, at the end of the day, this will yield higher interest than simply sitting your money to the bank. Thanks for your blog! :)

    ReplyDelete
    Replies
    1. Hi Anonymous,

      Glad you've took the step to start investing. Indeed it is better than having money in the bank. Start by reading up and learning about investment before you invest. Always invest in things that you know. :)

      Delete
  4. Hi,

    I want to start an investment but from my reading currently there are a few option that offers investment in small amount like the POSB Interest Saver, OCBC BCIP plan, share builder plan, etc. From your point of view which plan is best for a beginner like me with low capital.

    Thanks in advance

    ReplyDelete
    Replies
    1. Hi,

      All the 3 plans offers investment with low capital. They have their own advantages and disadvantages. Probably you can take a look at the sales charge to compare which is better for you. The fees are an important factor as it will eat into your investment return.

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    2. Hi SGYI,

      Thanks for the response, I've been browsing on the fees structures and currently POSB offers the lowest fee(assuming OCBC will cease they're promotional offer of $5 waiver for BCIP in Sep'14) as I'm looking to start at ard $150-200/month.

      Can I communicate with you further through email as I've tried to do some simple table using the Nikko AM historical price and just want to confirm if my calculation is correct or not.

      Thanks

      Delete
    3. Hi,

      Sure, feel free to send me an email.

      Delete
  5. Hi there,

    I came across your blog and am intrigued by the insights you have provided. However, I am a bit of a green horn when it comes to investment. To be honest, I have zero experience and not much knowledge. I came across the POSB invest saver and thought it would be a good product to start on since its better that I invest the money rather than put in the bank.

    In your opinion, what else do I have to do to gain more knowledge about the product because what is provided by the POSB website seems to be insufficient. Will you be able to help?

    Thank you so much for reading my queries.

    ReplyDelete
    Replies
    1. Hi,

      POSB invest saver allows you to invest in an index fund such as the STI ETF as what i mentioned above. You can probably ask me any other questions you might have then i can help you better. Feel free to email me at sgyounginvestment@gmail.com.

      Delete
  6. Hi! Sorry for digging up an old post!

    Due to some circumstances that occurred recently, my interest in investment kinda got sparked up and i am looking up on investment books and also chanced upon your blog which was really insightful and eye-opener for me (i read through most of the post u made and probably contributed quite abit into your view counter).

    I am currently 25 and as someone without any background on investment, i have started on the following:

    1) setting up the OCBC 360 account and trying to earn 2% of the interest while the promotion last.I am also using this as a stronghold for my emergency fund
    2) Still has my old POSB saving account as a spending account since their ATM machine are more readily available.
    3) Signed up for a seminar under the SGX academy regarding the basic of investing.

    As it will still be some time before i pick up on how to read company statement and choosing individual stock for investments, I'm thinking of putting the fund into either STI ETF or into government bond (1-4 years term) for the time being. I have read from this post and other blog that POSB invest saver will be the most cost effective for monthly investment below 500dollars.

    May i know your opinion on whether to put the money into the invest saver or bond and may i know if you are aware of any source that I can use to help me understand the ETF?

    ReplyDelete
    Replies
    1. Hi,

      I hope my posts have been beneficial to you ;)

      Good job on the OCBC 360 account and signing up for the seminar at SGX. I'm sure it'll be beneficial for you. I would think Index fund would yield better investment return than a bond fund. Also, currently interest rates are rising and set to rise further. Bond price will drop by then. Not a good choice to buy a bond fund now.

      Here's a good explanation on ETF by investopedia: http://www.investopedia.com/terms/e/etf.asp

      All the best!

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    2. Hi thanks for the fast reply!!

      Ya i have read that interest rate is already at the minimum and the only way it can go is up now. However, I will just like to clarify something. From what i understand, with regards to the drop in bond price, it doesn't really affect us if we are holding it into maturity right? The only thing is that we can't invest the captial into otherwise bond with higher interest.

      I will read into the ETF link that u shared and decide on whether to start on the POSB invest saver as a start while picking up more on investment. Looking forward to learning more from you!

      Delete
    3. Hi,

      If you buy into a bond fund, there's no maturity. Only those who buy the bonds directly have the option to hold till maturity and get back the face value. Every bond fund may be different though. Have to check it out first.

      Delete
  7. Hi there! I had been following your blog and i must said i have learnt quite abit from your blog!! I have some enquiries that i do not know where to get answer from so i am hoping you can shed some light on it!

    With the recent change of lot size from 1000 to 100, what is the appeal of still using the RSP? Is it because of the lower cost. Eg., for 500dollars monthly investment, I have read that using DBS vickers will cost 0.18% or min $25 for each transaction while these POSB RSP will cost only $5)?

    In addition, i had read on forum that most will suggest SCB trading due to its low comission rate at 0.2% while the other brokers have minimum comission. However, SCB hold the stock in a custodian account which usually incur a custodian fee or dividend fees.

    In addition, is there any benefit in holding the stock in yr own CDP account as opposed to it been held by the custodian account??

    Thanks in advance!

    ReplyDelete
    Replies
    1. Hi,

      Yes RSP using products such as the POSB invest saver will have a lower cost at 1%. Also, RSP is like passive investing where we invest regardless of the market conditions. It really depends if we want to active or passive invest.

      Buying shares through SCB means we won't own the stock at all. We will not have voting rights as what all shareholders will have. I would think if we don't have enough money to build up our own diversified portfolio, then go for index funds first. Save up as much as you can and you'll be able to invest better in the future.

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