While most of us use our Central Provident Fund (CPF) funds to pay for housing, education and medical bills (via MediSave), the primary purpose of the CPF system is for safeguarding our retirement adequacy.
Towards this end, the CPF Investment Scheme (CPFIS) gives eligible CPF members the option to invest their Ordinary Account (OA) and Special Account (SA) savings in a range of approved investments with the aim of achieving higher returns compared to the prevailing CPF OA and SA interest rate.
The predecessor to the CPFIS was the Approved Investment Scheme introduced in 1986. Over time, the scheme evolved into CPFIS, as we know it today.
In this article, we’ll examine the scheme in closer detail, as well as explain the requirements you will need to meet before you can start investing your CPF monies.
Am I Eligible To Invest My Monies Under CPFIS?
If you are interested in investing your CPF monies, you will need to meet the following criteria, besides having a CPF account, of course:
– Be at least 18 years of age;
– Not be an undischarged bankrupt;
– You need to set aside $20,000 in your OA and $40,000 in your SA before you can start using funds from both respective accounts to invest.
In addition to the above, investors new to CPFIS are also required to take the Self-Awareness Questionnaire before they can start making any investment.
The questionnaire is designed to assist CPF members to assess if CPFIS is suitable for them, through the learning and understanding of investment concepts such as risks and returns, as well as the various products and charges under the CPFIS.
How Much Of My CPF Monies Can I Use To Invest?
Besides setting aside $20,000 in your OA, there are limits on how much of your OA you can invest in each asset class. These limits are calculated based on your investible savings.
Your investible savings are defined as:
OA Balance + OA funds withdrawn for Education + OA funds withdrawn for investment
For example, if you have $50,000 in your OA savings, and withdrew $5,000 for education and $10,000 for investments, your investible savings would be $65,000.
Under CPFIS, you are only allowed to use up to 35% of your OA’s investible savings for shares, property bonds and corporate bonds, and up to 10% of your OA’s investible savings for gold ETFs and gold products.
That means you can invest up to $22,750 (35% of $65,000) in shares, property bonds and corporate bonds, and $6,500 (10% of $65,000) in gold ETFs and gold products.
There are no such limits on SA investments, since the list of pre-approved investments are already restricted.
What Kinds Of Investments Can I Make Using CPFIS?
There is a list of investment products, such as annuities, shares, and unit trusts that are approved for investment under CPFIS. The available investments differ depending on whether you’re using your OA or SA funds as well.
You can see the full list of eligible products here.
What Else Do You Need To Know Before Investing?
Unlike cash, your CPF savings is meant to prepare you for retirement or used in your housing purchase. As with every investment, you will need to consider the following below before you take on any investments with CPFIS:
Investment Risk: Like every investment using cash, your investments with CPFIS are subjected to risks from market volatility, where there may be a possibility of losing either part or all of your investments. Therefore, before you decide on placing your CPF monies into an investment, you may wish to consider the amount of risk you are comfortable to take on, and be prepared to invest for a long term.
Admin Charges: Another factor you need to consider is the admin charges from your investment.
Since October 2018, admin charges (or wrap fees) are capped at 0.7% of assets under management per annum and sales commission (or sales charge) is capped at 1.5%. These fees were brought down by CPF Board in an effort to discourage financial advisers from selling unsuitable products just to earn commissions.
As part of this ongoing fee reduction exercise, admin charges will be further capped at 0.4% of assets under management and sales commissions will be done away with by 1 October 2020. Both changes were slated to be implemented on 1 October 2019, but have now been deferred on the back of industry feedback that financial advisers required more time to adjust to the lower fee structure.
Source: Ministry of Manpower (MOM)
While the CPF Board has lowered the cap on the admin charges of the CPFIS investment, it is still a cost to your investments, and will erode your investment returns.
Your Financial Commitments: If you intend to use your OA savings to pay for your housing or education, you may wish to plan ahead and ensure you set aside sufficient funds before commencing any investments.
How To Start Investing Your CPF Monies?
Starting investments with CPFIS is a fairly easy process.
For CPF-OA investments: You will need to first open a CPF Investment Account with DBS, OCBC or UOB. You can do so by bringing your CPF statement and your identification along to any of their branches.
Once you have selected the bank of your choice as your fund administrator, you can commence your investment by approaching the respective investment product providers.
For CPFIS-SA investments: You can simply approach the investment product providers directly to purchase or sell your investments.
You can buy and sell your investments as often as you like (provided you hold them at least for a day), any returns from your investments will be credited back into your respective CPF accounts, and will be subjected to applicable CPF withdrawal rules.
It’s Easy To Invest Your CPF Monies, But Should You?
If you are a seasoned investor who has a strategy for building a diversified, risk-appropriate portfolio, CPFIS allows you to access additional funds and park them in asset classes that complement your existing investments.
However, if you don’t really have the time, expertise or risk-appetite to manage investments yourself, you’ll probably be better off enjoying guaranteed, risk-free, and cost-free interest from your CPF OA and SA accounts.
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