15 Crucial Facts Every Investor Should Know

MOTLEY FOOL SINGAPORE

12 OCTOBER 2016

Central Provident Fund

15 Crucial Facts Every Investor Should Know

Guaranteed Interest Ordinary accounts

earn 2.5%

More than a savings fund

Most of us who live and work in Singapore will know about the Central Provident Fund (or CPF).

Every time we are paid, a portion of our salaries is deducted and deposited into our CPF accounts. Our employers contribute toward the personal savings scheme too.

But there's more to the CPF than just that. We can also use the money in our CPF accounts for investing.

Home Sweet Home

Use your CPF savings to help buy your home and pay your mortgage

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START EARLY

People over 18 can invest part of their CPF

savings in shares

ORDINARY ACCOUNTS

Start investing when you have more than

$20,000

INVESTIBLE SAVINGS

Invest up to 35% in shares, property funds and corporate bonds

Build A Better Retirement

Learn how to invest your CPF savings to improve your returns

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Here are 15 facts that we should all know about the CPF.

12 OCTOBER 2016

Perhaps one of the biggest

1 investment decisions that any of us will make in our lifetime is to buy a house. But did you know that the money in our CPF accounts can be used to make repayments on our housing loans?

For Retirement Accounts, interest rate

4 calculations are more complex. But the annual interest rate could be as high as 5%. However, the current interest rate is set at 4% through to December 2016. The rate is revised every January.

Money in our CPF accounts will earn

2 a guaranteed interest rate, even if we don't invest in anything. The minimum annual interest rate on an Ordinary Account is 2.5% or the three-month average interest rate for major banks in Singapore, whichever is higher. Currently, the interest rate for the Ordinary Account is set at the minimum of 2.5%. It is reviewed quarterly.

We can receive even more interest

5 on our account balances. An extra 1%

in annual interest is paid on the first S$60,000 of our CPF combined balances. Up to S$20,000 can come from the Ordinary Account. CPF members aged 55 or above, get an additional 1% of annual interest on the first S$30,000 of combined balances (with up to S$20,000 coming from the Ordinary Account).

For Special and Medisave Accounts,

3 the interest rates are reviewed every

three months too. Both accounts earn interest at 4% annually or the 12month average yield of 10-year Singapore Government Securities plus 1%, whichever is higher. Presently, the interest rate for Special and Medisave Accounts is 4%.

We can invest the money in our

6 Ordinary Account (OA) and/or Special Account under the CPF Investment Scheme (CPFIS). Only 15% of us earned a return higher than the guaranteed annual interest rate of 2.5% on our OA, according to the Straits Times.

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12 OCTOBER 2016

How do you qualify for the CPFIS?

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We must: ? Be at least 18 years old. ? Have no undischarged bankruptcy. ? Have at least S$20,000 in our OA. ? Amounts above this can be invested. ? Have S$40,000 in our Special Account. Only

amounts above this can be invested.

We must open a CPF Investment

8 Account, if we want to invest under

the CPFIS with an Ordinary Account. It is not necessary to have a CPF Investment Account, if we are using only our Special Account under the CPFIS.

There are three CPFIS agent banks

9 that can help us open a CPF

Investment Account. They are: ? DBS Bank ? Oversea-Chinese Banking Corporation

(OCBC) ? United Overseas Bank (UOB)

There are restrictions on the types of

10 investments that are allowed under the CPFIS. Shares are allowed in the Ordinary Account but not the Special Account. Here's the full list:

Investment product under CPFIS OA SA

Fixed Deposits Singapore Government Bonds Treasury Bills (T-bills) Statutory Board Bonds Bonds guaranteed by the government Unit Trusts Investment-linked Insurance Products Annuities Endowment Policies Exchange Traded Funds (ETFs) Shares (or stocks) Property Funds Corporate Bonds Gold ETFs

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12 OCTOBER 2016

Not every investment product that

11 falls under an allowed category

belongs to the CPFIS. For instance, there are a number of unit trusts and ILPs (those deemed higher risk by the CPF) that can be purchased with the Ordinary Account but not with the Special Account. Before investing in a certain investment vehicle with our CPF accounts, it's worth reviewing the list of approved options.

See below to review lists of approved investments:

? Fixed deposits ? Click here

? Singapore government bonds ? Click here

? Treasury bills ? Click here

? Statutory bonds, Bonds guaranteed by the Singapore government, shares, property funds, and corporate bonds ? Click here (there's a column with the header labelled "CPFIS"; the allowed investment products will be given a "Y" rating)

? Unit trusts ? Click here

? ILPs, Annuities, and Endowment policies ? Click here

? ETFs ? Click here

? Gold ETFs - Click here

? Other Gold-related products ? The CPF requires you to approach United Overseas Bank, as it is currently the only bank that offers such gold-related investment products.

There are limits as to how much CPF

12 savings can be invested in shares,

property funds, corporate bonds, gold ETFs, and other gold products. We can only invest up to a total of 35% of our investible savings in shares, property funds, and corporate Bonds. As for gold ETFs and other gold-related products, 10% of investible savings can be invested in the two products combined.

It is worth regularly reviewing what

13 the CPF defines as "investible

savings" in our CPF accounts. The official CPF website provides tables that outlines how much capital can be invested in shares, property funds, corporate bonds (collectively known as stocks), and goldrelated investments, based upon actual account balances. Here are the steps to review the tables:

? Log into your CPF account

? Head over to "my cpf"

? Head over to "My Statement"

? Under "Section C," click on "Investment." You can then calculate the limits of your stock and gold investments.

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12 OCTOBER 2016

14 The government is currently reviewing the CPFIS. Deputy Prime Minister, Tharman Shanmugaratnam, has called the CPFIS "not fit for purpose."

15 Over the past decade, over 80% of CPF members who invested through the CPFIS would have earned better returns if they had simply left their money in their Ordinary Accounts.

TOP TIP:

Regularly review how much of your CPF savings you can invest in shares, property funds and corporate bonds.

A timely reminder that it is important to invest wisely!

We hope you have found this guide on the CPF useful. Knowing how we can invest through our CPF accounts could help us improve our returns and in turn help us build a better retirement.

A FOOLISH BOTTOM-LINE

Our CPF accounts are a great place for long-term savings. We can't touch it until we reach retirement age. So it's important that we grow our money by starting our investing habits as early as we can.

Letting our money compound is one of the best ways of improving our prospects for retirement. But it is important to choose the right shares that will deliver over the long term.

Warren Buffett once said, "Don't own a stock for 10 minutes if you don't plan to own it for 10 years." So always focus on the long term!

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