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Passive Investment Strategy For ETFs in Singapore (Part II) – Using The Banks


In this second article on our series in passive investment, we discuss ways you can invest your savings using investment plans from banks.

In our previous article, we illustrated examples of how retail investors can make use of stock indexes and bonds to enjoy the benefits of a hands-off and diversified portfolio brought about by both asset classes.  In this article, we will share another two methods in which you use. These two methods utilise the investment plans from financial institutions.

If you first require more knowledge on what passive investing is, do refer to our investing category in DollarandSense.sg. There are sets of articles there that you can explore first.

Background

Traditionally, investing involves buying and selling of shares through a broker. It is at the full discretion of the investor as to what kind of shares he would want to buy. But what if an investor wants to invest passively to avoid the daily market gyrations?

Two local financial institutions have introduced their own investment plan that aims to help, savers and investors alike, to invest in the financial markets through a disciplined approach.

OCBC and POSB introduced similar yet fundamentally different investment plans, both of which allows access into the blue chip sector of the Singapore Stock Exchange. Blue chip stocks refer to large mature companies with stable fundamentals, and who are well recognized as high quality companies. Examples of such companies include CapitaLand, Singapore Press Holdings (SPH) and SingTel.

At the most fundemental level, these investment plans can be seen as akin to a regular savings plan, with an add-on investment function and acommpanying risk element. It requires the investor to put in a specified amount of money each month, which are then subsequently used to purchase shares.

POSB Invest-Saver

By passively investing in the stock market, the investor is simply buying the market index and tracking the market return. In local context, the only strategy to buy the market index is through an exchange-traded fund (ETF). And this is basically what the POSB Invest-Saver is offering. There is only one product; the Nikko AM Singapore STI Exchange Traded Fund in the investment. By regularly investing with the plan, the investor is essentially purchasing units of the ETF.

To provide a comparison, the Nikko AM ETF is also available under SGX. What this means is that an investor can purchase the ETF straight from the exchange. However buying from an exchange requires the investor to buy in LOTS. (1 Lot = 1000 shares). As at 13th Dec, the ETF is trading at S$3.09. An investor has to pay an upfront fee of S$3090 for 1 lot of share. By investing regularly with POSB Invest-Saver, an investor can purchase the ETF in odd lots.

Differences between POSB & OCBC investment plan

The differentiating factor in the OCBC’s Blue Chip Investment Plan (BCIP) is that the bank offers not only the Nikko AM ETF but also 19 other individual blue chip stocks whereby investors can select from. An investor can choose to purchase the ETF, or individual blue-chip companies.

There are times whereby an investor may want to purchase a particular blue chip company instead of the ETF. The person may believe that the company has a hight chance of outperforming the market index.

For illustration purposes only, Singapore Press Holdings (SPH) is a blue-chip company available under the BCIP. Recently, the company acquired a few other companies to broaden its revenue base. It also spun off part of its development property unit. An investor may potentially perceive this as good news and thus would want to purchase the stock, instead of the broader based ETF.

The advantage in buying odd lots

As discussed above, buying a single lot of the Nikko AM ETF requires an upfront payment of $3,090 (before brokerage charges). This might prove difficult for students or even fresh graduates who do not have that must money to invest in.

These products provide flexibility in terms of the amount can chooses to invest in on a monthly basis. It is very similar to a regular saving plan with the exception that the saving is directed into investments.

In addition, buying shares regularly also ensure that one takes advantage of “dollar cost averaging.” In essence, buying at different time periods enable one to average out the volatility in prices. Do however pay heed to the brokerage charges that these investment plans will charge you because they could potentially eat into your long-term returns.

If you are interested to find out more about ETFs in Singapore, do follow us on Facebook. We will be posting more articles in the next few weeks on how ETFs in Singapore stack up against investing in Unit Trust.

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