With investing being all the rage with young adults in Singapore these days, has it ever occurred to you that you might be able to use your Central Provident Fund (CPF) to make investments too?
With the CPF Investment Scheme (CPFIS) you can do just that.
There are a plethora of investment options available under the CPFIS that even the most proficient investors might be unaware of.
Read on to find out more about CPFIS and how this scheme might be beneficial for you.
What is CPF Investment Scheme (CPFIS)?
The CPF Investment Scheme (CPFIS) is one of the schemes provided by the CPF Board. CPFIS enables CPF members to use a fraction of their Ordinary Account (CPF-OA) and/or Special Account (CPF-SA) for investment purposes. As a result, it can help to enhance the security of your retired life.
Isn’t my CPF money already accruing interest?
Yes, you’re right. However, unlike your typical CPF accounts which are mandatory to make contributions to, taking up the CPFIS isn’t.
This scheme merely provides you with an option to invest your CPF funds for the chance to grow it at a faster rate.
The table below shows the current minimum interest rates you’ll earn for each compulsory CPF account under default circumstances.
| Account | Minimum Annual Interest Rates |
| Ordinary Account (OA) | 2.5% |
| Special Account (SA) | 4% |
| Medisave Account | 4% |
| Retirement Account (RA) | 4% |
The difference between earning from the interests provided as compared to investing your CPF funds is that CPF provides these interests without any risk.
This basically means that you are guaranteed to receive these returns on a yearly basis on your CPF monies.
Investing via CPFIS on the other hand, means you take your chances at increasing the returns higher than what CPF guarantees.
If you don’t want investment risks, you can still leave your money in your CPF account and earn risk-free interest.
In both CPF accounts and CPFIS, your interest return goes back into your total CPF monies.
Should you move your OA ordinary account funds into other accounts to increase returns?
Now, you might be thinking that since the other accounts enjoy higher interest rates, why don’t I just transfer funds from my OA account into them?
It seems that it is not possible to make transfers from your OA account to your Medisave Account. Furthermore, funds from your OA are automatically moved to your RA at the age of 55.
As for transfers to your SA, you could if you have sufficient funds in your OA for housing and education.
This is because once you move your OA funds into your SA account accounts, they are permanently locked in until your retirement. You are unable to reverse this transaction.
And if you don’t have enough funds for major purchases using your OA account, you’d probably have to fork out more cash to do so.
Should I invest with CPFIS?
Now comes the question that many Singaporeans ask themselves, should they try to invest with CPFIS or leave it in their accounts to accrue at a risk-free interest?
Before we give you an answer, I’m going to share with you some data.
From 2015-2019 (5 years), on average, only 52.6% of those who invested with their CPFIS-OA earned a return of more than 2.5%.
This means that 1 of 2 individuals are earning lesser than the risk-free rate – it would have been better if they had left their accounts alone.
These are not great odds but the returns on 2.5% aren’t fantastic either.
So before you decide on whether you should invest with CPFIS, you need to be sure that you know what you’re doing or else you’re just losing out.
Either you do more research thoroughly and constantly evaluate your investments, or engage someone certified to advise you on them.
What are the criteria to invest under CPFIS?
Say you’ve decided that you would like to go ahead and invest with CPFIS, there are criteria that you’ll need to meet before being able to do so.
- You must be at least 18 years old;
- Not an undischarged bankrupt;
- New investors must take the Self-Awareness Questionnaire (SAQ);
- Must have $20,000 or more in OA (CPFIS-OA) and/or;
- Must have $40,000 or more in SA (CPFIS-SA)
If you qualify, you need to decide which account you’d like to invest from – your OA or your SA. Generally, for newer and more inexperienced investors, it’s best to use your OA account as the guaranteed return of 2.5% is easier to beat.
What can I invest in with my CPF?
The table below shows the respective investment products types that you can invest in with your OA and SA.
| Investment Product Type | CPFIS-OA | CPFIS-SA |
| Unit Trusts | Yes | Yes, but higher risk ones are not included |
| Investment-linked insurance products (ILPs) | Yes | Yes, but higher risk ones are not included |
| Annuities | Yes | Yes |
| Endowment policies | Yes | Yes |
| Singapore Government Bonds (SGBs) | Yes | Yes |
| Treasury Bills (T-bills) | Yes | Yes |
| Exchange Traded Funds (ETFs) | Yes |
|
| Fund Management Accounts | Yes | No |
| Fixed Deposits (FDs) | No available products at the moment | |
| Statutory Board Bonds | No available products at the moment | |
| Bonds Guaranteed by Singapore Government | No available products at the moment | |
| Shares | Yes (Maximum 35% of investible savings) | No |
| Property Funds | Yes (Maximum 35% of investible savings) | No |
| Corporate Bonds | Yes (Maximum 35% of investible savings) | No |
| Gold ETFs | Yes (Maximum 10% of investible savings) | No |
| Other Gold products (such as Gold certificates, Gold savings accounts, Physical Gold) | Yes (Maximum 10% of investible savings) | No |
| Investible savings = Value of CPF-OA + Sum used for housing purchases + Sum used for education | ||
More detailed information about the products under the CPFIS, such as a list of investment products in each investment class or the admission criteria for each asset class, can be found on the CPF board website.
What should I invest in?
This is a tough question as it ultimately depends on your financial needs, objectives and risk appetite. You really need to fully understand these aspects before you can make the best decision for yourself investment-wise.
For instance, if you find that you have a low-risk tolerance yet still believe in investing your CPF, you may decide to invest in T-Bills or SGBs which are the least risky.
Should you feel that it is too complicated of a process, you can always consult a trusted financial advisor or even a robo advisor to help you make the best choice.
Can I invest all of my CPF?
You might have weighed the pros and cons and feel that investing under CPFIS is a great decision for yourself. Now, does that mean you can invest your entire CPF then?
Unfortunately, there are limitations to how you can distribute your monies across asset classes, which you might have observed above.
The table below summarises the general limitations of investing with your OA or SA.
| CPFIS Type | Limitations / Restrictions |
| CPFIS – OA |
|
| CPFIS – SA |
|
Are there any risks involved in CPFIS investments?
You must get rid of the notion that since CPFIS investment consists of specifically approved investment products by the CPF, there will be no risks at all.
The CPF board neither guarantees exceptional nor degraded returns from products offered for CPFIS. The returns fluctuate according to the respective market of your chosen investment product class, like regular investment assets.
In order to curb the risks and reduce them to a minimum, explore all the approved shares and investment products in the CPF Investment Scheme.
You need to understand that the investments you are about to make must meet your financial objectives.
Furthermore, you can check past performance on the Investment Management Association of Singapore so as to use performance trends of the products you are interested in to make well informed investing decisions.
You can also find risk monitoring reports which allow you to better understand the risks that you may face.
How can I invest with CPFIS?
After determining your eligibility, you would have to set up a CPF investment account with one of the following banks.
- DBS/POSB
- OCBC
- UOB
Fees and costs charged by the 3 banks are all the same, so you can choose anyone that you prefer.
Do note that if you decide to invest using your SA (CPFIS-SA), there’s no need to open an account with the banks. You can contact providers of the investment products directly.
Next, you will have to decide if you would like to invest
- Independently;
- With a financial advisor; or
- With a robo advisor
| Decision | Description |
| Independently (On your own) |
|
| Via Financial Advisor (FA) |
|
| Via Robo Advisor |
|
Sales and Wrap charges for CPFIS
Previously, distributors of investment products included under CPFIS could charge a maximum sales charge (essentially commission charge) of 3% and a maximum wrap charge (essentially admin fee) of 1%.
However, in March 2018, the government announced the removal of sales charges and a ceiling of 0.4% for wrap charges, which took effect from 1st October 2020.
As it is reported that in the 3rd quarter of 2019, 40% of investors under CPFIS-OA did not manage to earn more than the risk-free return rate of 2.5%.
Therefore by reducing costs, the government hopes to increase returns for those who take up the CPFIS making it a better experience for them.
Nonetheless, one still has to be mindful that financial advisors who only care about their own interests can still recommend expensive investment products which are not beneficial to you so as to earn the most from wrap charges.
Hence, you really need to do your own due diligence before making any sort of investment.
Conclusion
In essence, the CPFIS can be beneficial to you if you are confident in your own ability to invest and beat the existing risk-free return rates.
You can also opt for a certified financial advisor to advise the right products, if you believe in investing your CPF yet do not know how to go about doing so.
However, if you are not willing to take risks, it is safer to just leave your CPF savings in their allotted accounts.
It is crucial for you to do one’s research for a suitable investment that suits your financial goals.
