Once you set aside funds for your savings and
other monthly expenses, you may be considering making investments to grow your
money. With an ever-increasing number of financial products available, you need
to understand your appetite for risk, investment horizon and the product you
are investing in.
Your 1st Steps
While investing may be an option to grow your savings quickly, you should only make an investment when you have set aside enough for your daily needs and emergency funds. Having done so, due diligence is required on your part to understand the risks associated with any investment.
Before you begin investing, learn about basic investment concepts such as risk-return trade-offs, asset allocation, diversification and dollar cost averaging. After you understand the different financial terms and products, do a stock take of your needs, your ability to withstand risks and losses, the investment time horizon, and other factors that affect your overall financial situation before you make any investment.
Here is a start to understanding investment terms.
Investment Products Available
Bonds, Unit Trusts, Shares, Exchange Traded Funds, and Insurance. These are just a few types of investment products that are available. With new investment products being launched regularly, you may be confused by the many options in the market. Here is a comprehensive listing of products available for investment that you may find useful.
The higher the risk, the higher the potential return. Be wary of investments that promise quick and attractive returns as you may risk losing your capital.
CPF Investment Scheme
While cash savings are commonly used for investment, you have the option of using your Central Provident Fund (CPF) savings for investment. The CPF Investment Scheme allows you to do just that, through a wide range of investment products to build up your retirement savings. You can use savings from your Ordinary Account or Special Account to participate in the scheme. However, you should keep in mind the guaranteed interest rates you earn on your CPF savings. When investing your CPF savings, do so only if you are confident of earning more than the current CPF interest rates.
For more information on the CPF interest rates, click here
To make an investment using your CPF savings, you should:
- Be at least 18 years old;
- Not be an undischarged bankrupt; and
- Have more than $20,000 in your Ordinary Account and/or more than $40,000 in your Special Account
If you intend to use the savings from your Ordinary Account for investment, you can start by opening a CPF Investment Account with any of the three agent banks:
- DBS Bank Ltd (DBS)
- Overseas-Chinese Banking Corporation Ltd (OCBC)
- United Overseas Bank Ltd (UOB)
You do not need to open a CPF Investment Account if you are using the savings in your Special Account; you can approach the product providers directly to buy and sell your investment products.
As with any kind of investment product, you will incur charges, which are payable from your CPF savings. Click here for more information on the types of charges you may incur.
The profits, interest you earn from your investments and dividends are not taxable under the CPF Investment Scheme. Do also note that the profit from the investments made using your CPF savings cannot be withdrawn. These monies will go towards building up your retirement savings. Should you make a loss, you do not have to make good the losses in cash to your CPF account.
Selling your investments under the CPF Investment Scheme:
To sell your investments, you should approach the product providers directly. When you sell your investments, the sale proceeds will be automatically credited back to your CPF account that was used for the investment.
Click here to access the full list of Service and Product Providers included under the CPF Investment Scheme.
For more information on the CPF Investment Scheme, click here.
Your CPF investments at 55
When you reach 55, a Retirement Account will be created for you. The savings from your Special Account and Ordinary Account will be transferred to your Retirement Account to set aside your retirement sum. If you intend to invest under the CPF Investment Scheme, the available amount you may invest may be reduced as a result of the transfer of monies to your Retirement Account. You can continue to use the monies from your Ordinary Account or Special Account for investments, as long as you set aside the first $20,000 in your Ordinary Account and the first $40,000 in your Special Account. This is to enable you to earn the extra 1% interest per year on the first $60,000 of your combined CPF balances. On top of this, you will earn an additional 1% extra interest per year on the first $30,000 of your combined CPF balances from 1 January 2016.
You can continue to make investments or withdraw your earlier investments when your reach 55, as long as you have set aside the Full Retirement Sum or the Basic Retirement Sum with sufficient property charge/pledge in the Retirement Account. Your CPF Investment Account will be closed once you withdraw your investments.
More about your Golden Years.
Divorce and Your CPF Investments
Should you undergo a divorce, the Court may divide the matrimonial assets acquired during the couple's marriage, including CPF monies. The Court could also order the sale of any investments that you may have made under the CPF Investment Scheme. Once the investment proceeds have been credited to your CPF account, the Court could order a division of the proceeds.
This division can be done through a CPF transfer (only applicable if your ex-spouse is Singapore Citizen or Singapore Permanent Resident) or through a charging order. If your ex-spouse is a foreigner, he/she can only request for a charging order. In a CPF transfer, the Court can order an immediate transfer of your CPF savings to your ex-spouse's CPF savings under the division of CPF savings in a divorce. If the Court places a charging order on your CPF savings, your ex-spouse will be entitled to receive his/her share of your CPF monies in cash, when you are eligible to withdraw your CPF savings.
More about Divorce.
Bankruptcy and Your CPF Investments
If you are an undischarged bankrupt, you will not be able to use your CPF savings to invest. However, you can continue to hold on to any CPF investments that you may have already made.
If you liquidate your investments subsequently, the sale proceeds will be credited into your CPF Investment Account or Special Account.
CPF investments and cash balances in the CPF Investment Account are protected from claims by creditors and the Official Assignee, as long as these remain within the CPF Investment Scheme. Once withdrawn, the CPF investments and cash balance in the CPF Investment Account will no longer be protected.
If you pass away as a bankrupt, all CPF investments* and cash balances in your CPF Investment Account will form part of your estate and will be distributed according to applicable laws. Do note that these investments will then cease to be protected from your creditors and may be used to satisfy their claim in accordance with the Probate and Administration Act.
*Except if policyholders have nominated specified beneficiaries for their insurance policies.
More about Bankruptcy.
CPF Investments When You Pass Away
If you wish to decide how your CPF savings are distributed once you pass on, you will need to make a CPF nomination. If a CPF Nomination was not made, your CPF savings will be transferred to the Public Trustee for distribution to your family under the intestacy laws. For Muslims, your CPF savings will be distributed according to the Inheritance Certificate, which your family members can obtain from the Syariah Court (Muslim inheritance law).
Any investment you may have made under the CPF Investment Scheme, except for discounted SingTel shares under the Special Discounted Shares Scheme, will form part of your estate and will not be covered by your CPF nomination.
To ensure your estate is distributed according to your wishes, you should consider drafting a Will, which will cover all your assets, with the exception of your CPF savings.
More about Death.
Further Growing Your CPF Savings
No investment is guaranteed to be profitable. If you do not wish to risk losing your monies through investments, you can build your CPF savings by leaving it in the CPF accounts to earn attractive interest rates.
To help you grow your CPF savings, consider making top-ups beyond the mandatory CPF contributions, through a lump sum payment or regular contributions by GIRO. You can consider several options for topping-up.
You can make voluntary contributions, through a lump sum payment or GIRO, to build up you and/or your loved ones' retirement savings. Voluntary contributions to all your CPF accounts (Ordinary Account, Special Account and MediSave Account) are subject to the approved limit and do not qualify for tax deduction. However, voluntary contributions to your MediSave Account alone are tax deductible. For more information on making voluntary contributions, click here.
Alternatively, you can transfer the savings from your Ordinary Account to your Special Account to earn higher interest. However, do note that this transfer is not reversible. You can transfer an amount up to the current Full Retirement Sum in your Special Account. - More information.
Another option is the Retirement Sum Topping-Up Scheme which allows you to make top-ups to yourself and/or your loved ones'* Special Account (below age 55) or Retirement Account (age 55 and above). You can enjoy tax relief of up to $14,000 per year if you use cash to top up for yourself (up to $7,000) and your loved ones (up to $7,000). - Find out more.
Alternatively, you can transfer the savings from the Ordinary Account to the Special Account or Retirement Accoun to earn higher interest. However, do note that this transfer is not reversible.- More Information.
* "Loved ones" include your parents, parents-in-law, grandparents, grandparents-in-law, spouse and siblings.
Investments can help grow your savings
and provide you with a larger retirement nest egg. However, you should consider
the risks involved and do your research before making any investment decision.
It is always good to exercise prudence and pay careful attention to details in
all matters of investment.