For the retail investor, there is a wide array of investment products available in the market. You might have read about them online or perhaps your financial adviser recommends them to you. Some of these products may carry the classification of being a Specified Investment Product (SIP), for instance, Daily Leverage Certificates.
Let’s look at what is a SIP and how do you get certified to purchases SIPs. Finally, we ask whether it is a good idea for you to do so.
About Specified Investment Products
Not all investment instruments are created equal. Some have complex (and even convoluted) mechanics that make it difficult to understand and to make an informed investment decision.
SIPs are typically derivatives or have components that are derivatives, which mean that your investments will be exposed to multiple factors that may cause you to lose money. In some cases, you may lose more money than the capital you put up. In the case of futures, you might be subjected to counterparty risk, where the entity underwriting your trade is unable to honour their financial obligations to you.
In order to protect retail investors from unwittingly purchasing these exotic investments, the Monetary Authority of Singapore (MAS) has designated certain investments as SIPs, requiring investors to have a certain understanding of financial concepts before being allowed to purchase SIPs. This is to ensure that investors are equipped with enough background knowledge to have a chance at understanding SIP they intend to purchase.
When browsing on the SGX website, SIPs are marked with a “@” prefix.
SIPs can be broadly categorised into two types: those that are listed on an exchange and those that are unlisted.
The matters because the criteria for being able to buy listed and unlisted SIPs are different.
Before you are allowed to buy listed SIPs, financial institutions like your broker, bank or financial advisor will need to conduct a Customer Account Review (CAR) with you. Once you clear the CAR, it is valid for three years, before you need to go through the CAR again.
If you wish to purchase unlisted SIPs, then your financial institution must conduct a Customer Knowledge Assessment (CKA) on you. After clearing the CKA, you will need to do it again annually to continue buying SIPs.
If you want to buy both types of SIPs, then you must go through both a CAR and CKA.
Requirements Before Trading SIPs
Broadly speaking, you need to have one of the following:
1) Relevant educational or professional qualifications in the finance field.
2) Relevant working experience in finance.
3) Prior experience investing in SIPs.
These are guidelines, your financial institution has the discretion to evaluate your suitability for purchasing SIPs. In the event you are deemed unsuitable, you can voluntarily undergo the SGX Online Education programme to bolster your knowledge and then be reassessed by your financial institution.
Since responsibility for conducting and certifying that you meet the criteria set out in the CAR or CKA, if you change brokers or financial advisers, you will need to undergo the assessment again, since your new financial institution is responsible for conducting their own CAR and CKA.
Only Accredited Investors and Expert Investors as defined under the Securities and Futures Act (SFA) are exempted from going through either CAR or CKA.
Is It A Good Thing To Be SIP Certified?
Rather than see SIP certification as a good thing or not, the question you should be asking is: How can the product help you achieve your investment objective? Is the characteristics of the product something you need or want?
How well do you understand how the product works and the risks you will be exposed to? What is the worst thing that can happen and how much will your losses be in that scenario?
SIPs aren’t “special” or “secret” investments that is available to “elite” investors. There is no statistics that indicate how much money investors make (or lose) on SIPs.
As with all investments, the higher the expected returns, the more the risk you can expect to take.