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PR Newswire
09-01-2011, 09:55 AM
Jan 9, 2011
CPFIS tightening = steadier returns
By Lorna Tan, Senior Correspondent
The start of this year saw the full implementation of stricter admission criteria for funds in the Central Provident Fund Investment Scheme (CPFIS).
As a result, the current number of unit trusts and investment- linked insurance plans (ILPs) in the CPFIS that meet the stricter criteria has fallen to 195 from more than 400.
The figure comprises 81 unit trusts and 114 ILPs.
The move, which was implemented progressively from 2006, is part of CPF Board's efforts to improve returns for members by enhancing the quality of funds in the scheme and capping costs.
As of Jan 1, funds on the CPFIS menu must comply with all four criteria.
They are: a top-quartile performance ranking among the fund's global peers; a total expense ratio (TER) lower than the median of
CPFIS funds in respective risk class; a sales charge not exceeding 3 per cent; and preferably a three-year track record.
If the funds do not fully meet the criteria, they can still be in the CPFIS, but will be closed to new CPF money.
CPF members who have bought CPFIS funds which do not meet the stricter criteria have three options.
They can either hold their units, redeem, or switch their units for free into other CPFIS funds that are eligible to take in new CPF monies. The free switching option is available until end-June.
CPF members are advised to consider if the new funds match their investment objective and risk appetite before switching.
The CPF Board said that the stricter admission criteria have seen some good results. For example, the median total expense ratio of CPFIS funds has come down since 2006. The TER of lower risk funds has dropped from 0.72 in 2006 to 0.32 in 2009.
It added that lower expense ratios will translate to better returns. For instance, a 1 per cent charge on assets over 40 years could erode returns at retirement age by 22 per cent.
Said a CPF Board spokesman: 'CPF Board's tightening measures recognise that the proliferation of choices under CPFIS (in the past) has not served CPF investors well.
'To enhance the chances of achieving sustainable returns, our goal is for CPFIS to offer a basket of quality funds which are well-diversified, backed by good performance and robust processes, and come with low investment costs.'
Since 2006, the consolidation of CPFIS funds has resulted in the dwindling of more than 400 funds to 310 currently.
Of these, 195 fully adhere to the admission criteria and 19 are awaiting evaluation.
The review of these firms and funds is expected to be completed by end June.
Meanwhile, these funds are allowed to take in new CPF monies.
The balance of 96 CPFIS funds do not meet the admission criteria and are not allowed to take in new CPF money.
Mr Ben Fok, chief executive of Grandtag Financial Consultancy, reminds CPF members to target consistent returns instead of high returns with their CPF funds as they are meant for long-term investment.
He believes that investors can achieve an adequately diversified portfolio comprising global equities, Asia, Greater China, Singapore, emerging markets, gold, resources and bonds if they invest in the respective CPFIS funds.
'Even if you are an aggressive investor, there are several options available for you to invest, such as single country funds including India and China, commodities, resources, property, technology, small companies, Asia emerging markets and thematic funds.'
And average-risk investors can consider investing in global equities and regional funds, such as US, Europe, Greater China, and South East Asia funds and global emerging markets.
'These funds will have a global and regional diversification effect that is broadly diversified, and it takes away the need to identify countries and sector when investing,' said Mr Fok.
Based on the recent profit and loss report for CPFIS for the year ended Sept 30, CPF members have generally been doing better in their CPFIS investments than the previous year, with more members making profits.
lorna@sph.com.sg
--------------------------------------------------------------------------------
From Jan 1, funds on the CPFIS menu must comply with all fourcriteria:
1) A top-quartile performance rankingamong the fund'sglobalpeers
2) A total expense ratio lower than the median of CPFIS funds in respective risk class
3) A sales charge not exceeding 3 per cent
4) Preferably, a three-year track record
Options for all investors
'Even if you are an aggressive investor, there are several options available for you to invest, such as single country funds including India and China, commodities, resources, property, technology, small companies, Asia emerging markets and thematic funds.'
MR BEN FOK, chief executive of Grandtag Financial Consultancy
CPFIS tightening = steadier returns
By Lorna Tan, Senior Correspondent
The start of this year saw the full implementation of stricter admission criteria for funds in the Central Provident Fund Investment Scheme (CPFIS).
As a result, the current number of unit trusts and investment- linked insurance plans (ILPs) in the CPFIS that meet the stricter criteria has fallen to 195 from more than 400.
The figure comprises 81 unit trusts and 114 ILPs.
The move, which was implemented progressively from 2006, is part of CPF Board's efforts to improve returns for members by enhancing the quality of funds in the scheme and capping costs.
As of Jan 1, funds on the CPFIS menu must comply with all four criteria.
They are: a top-quartile performance ranking among the fund's global peers; a total expense ratio (TER) lower than the median of
CPFIS funds in respective risk class; a sales charge not exceeding 3 per cent; and preferably a three-year track record.
If the funds do not fully meet the criteria, they can still be in the CPFIS, but will be closed to new CPF money.
CPF members who have bought CPFIS funds which do not meet the stricter criteria have three options.
They can either hold their units, redeem, or switch their units for free into other CPFIS funds that are eligible to take in new CPF monies. The free switching option is available until end-June.
CPF members are advised to consider if the new funds match their investment objective and risk appetite before switching.
The CPF Board said that the stricter admission criteria have seen some good results. For example, the median total expense ratio of CPFIS funds has come down since 2006. The TER of lower risk funds has dropped from 0.72 in 2006 to 0.32 in 2009.
It added that lower expense ratios will translate to better returns. For instance, a 1 per cent charge on assets over 40 years could erode returns at retirement age by 22 per cent.
Said a CPF Board spokesman: 'CPF Board's tightening measures recognise that the proliferation of choices under CPFIS (in the past) has not served CPF investors well.
'To enhance the chances of achieving sustainable returns, our goal is for CPFIS to offer a basket of quality funds which are well-diversified, backed by good performance and robust processes, and come with low investment costs.'
Since 2006, the consolidation of CPFIS funds has resulted in the dwindling of more than 400 funds to 310 currently.
Of these, 195 fully adhere to the admission criteria and 19 are awaiting evaluation.
The review of these firms and funds is expected to be completed by end June.
Meanwhile, these funds are allowed to take in new CPF monies.
The balance of 96 CPFIS funds do not meet the admission criteria and are not allowed to take in new CPF money.
Mr Ben Fok, chief executive of Grandtag Financial Consultancy, reminds CPF members to target consistent returns instead of high returns with their CPF funds as they are meant for long-term investment.
He believes that investors can achieve an adequately diversified portfolio comprising global equities, Asia, Greater China, Singapore, emerging markets, gold, resources and bonds if they invest in the respective CPFIS funds.
'Even if you are an aggressive investor, there are several options available for you to invest, such as single country funds including India and China, commodities, resources, property, technology, small companies, Asia emerging markets and thematic funds.'
And average-risk investors can consider investing in global equities and regional funds, such as US, Europe, Greater China, and South East Asia funds and global emerging markets.
'These funds will have a global and regional diversification effect that is broadly diversified, and it takes away the need to identify countries and sector when investing,' said Mr Fok.
Based on the recent profit and loss report for CPFIS for the year ended Sept 30, CPF members have generally been doing better in their CPFIS investments than the previous year, with more members making profits.
lorna@sph.com.sg
--------------------------------------------------------------------------------
From Jan 1, funds on the CPFIS menu must comply with all fourcriteria:
1) A top-quartile performance rankingamong the fund'sglobalpeers
2) A total expense ratio lower than the median of CPFIS funds in respective risk class
3) A sales charge not exceeding 3 per cent
4) Preferably, a three-year track record
Options for all investors
'Even if you are an aggressive investor, there are several options available for you to invest, such as single country funds including India and China, commodities, resources, property, technology, small companies, Asia emerging markets and thematic funds.'
MR BEN FOK, chief executive of Grandtag Financial Consultancy
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