Happy New Year from Korea everyone! I am currently on a business trip in Seoul, visiting our Korean counterparts for 2 weeks. Besides the weeknight / weekend day trips to popular spots like Myeongdong and Dongdaemun, I have also found some time to do a bit of writing.
With the new year comes the new year resolutions of many Singaporeans. If you have been trying to get started on investing but not very exactly sure how to get started, then this post on dollar cost averaging and regular savings plans should be a good guide for you. Here goes.
Dollar cost averaging (DCA) is a tool in the repertoire of the long term investor to minimize impact on portfolios due to market turbulence. DCA works because cost of investing reduces to some average amount that generally performs better than if a lump sum amount is straightaway placed into the market, especially if the market is volatile. There are many resources explaining the numbers behind DCA and its pros and cons, so I won’t talk about those in this post.
What I would to present in this post, however, is a guide to getting started in practicing DCA in Singapore. DCA in Singapore is generally referenced using the term “regular savings plan” (RSP), and if you do a quick Google search on RSPs in Singapore, you should be able to see a couple of prominent articles:
- Moneysmart - https://blog.moneysmart.sg/this-vs-that/posb-ocbc-poems-maybank-kim-eng-which-regular-savings-plan-to-use/
- Seedly - https://blog.seedly.sg/which-regular-savings-plan-is-the-cheapest
- Dollarsandsense - https://dollarsandsense.sg/which-monthly-investment-plan-is-suitable-for-you/
And from there, you should be able to see that there are four main providers of RSPs in Singapore, namely:
- The POSB Invest-Saver (IS)
- The OCBC Blue Chip Investment Plan (BCIP)
- The Phillip POEMS Shares Builder Plan (SBP)
- The Maybank Kim Eng Monthly Investment Plan (MIP)
Each has their pluses and minuses, so in this post, I will build a simple framework to draw the important comparisons between each of these RSPs. If you decide to join the club and be a DCA-er like me, then hopefully this post can help you make a more informed decision.
Can’t build a framework for analysis without having our basis of comparison:
- Range of counters available
- Transaction fees and minimum charges
- Dividend reinvestment
- Payment modes and order execution
- Selling and other hidden fees
- Other factors of consideration
1. Range of counters available
Following illustrates the range of counters available in each RSP:
Total SGX Other exchanges ETFs Bond-based IS 2 2 0 2 1 BCIP 18 18 0 1 0 SBP 39 39 0 5 2 MIP >230 45 The rest (US, HK, MY, TH) 0 0
It is immediately clear that the MIP gives investors acccess to a significantly larger range of counters, including those in the US and Hong Kong. MIP does not provide access to any ETFs. The other three provides only counters in SGX, with the SBP being the most varied.
Arguably, if you are thinking of doing DCA, then it’s unlikely that you would want to dabble in any counters traded in Malaysia or Thailand - maybe Hong Kong as well.
In terms of ETF coverage, following illustrates:
Equity-based ETFs Bond-based ETFs IS G3B.SI A35.SI BCIP G3B.SI - SBP ES3.SI, OVQ.SI, CLR.SI A35.SI, MBH.SI MIP ES3.SI -
2. Transaction fees and minimum charges
The next thing we have to consider is of course transaction fees. Pitched as a low barrier of entry product for investors to start investing, transaction fees in RSPs are typically lower than that of brokerage accounts.
Transaction fees IS 1% for G3B.SI, 0.5% for A35.SI BCIP 0.3% or $5 per counter, whichever is higher SBP < $1,000 transactions and ≤ 2 counters: $6
< $1,000 transactions and ≥ 3 counters: $10
> $1,000 transactions: 0.2% or $10, whichever is higher
MIP < $1,000 transactions: 1%
> $1,000 transactions: 0.18% for SGX, 0.2% otherwise
From this, it’s clear that the selection of RSP product is a function of your total monthly investment amount, ceteris paribus.
< $500 $500 - $1,000 > $1,000 IS ≤ $5 $5 - $10 1% or 0.5% BCIP $5 $5 0.3% SBP $6 $6 - $10 0.2% MIP ≤ $5 $5 - $10 0.18% or 0.2%
Simply put, if you have $500 tops to invest per month, then IS or MIP are probably your best options, as there are no minimum charges. On the other hand, if you have more than $1,000 to invest per month, then SBP or MIP would be better options for you as you would have crossed the minimum charges threshold.
That leaves the $500 - $1,000 range. If you are in this range, I would think it’s reasonable to assume that in the short-term you should be able to increase your investment to above $1,000 per month. Therefore I would recommend making your decision with that in mind.
3. Dividend reinvestment
Many investors are divided (pun intended) between dividend withdrawal and dividend reinvestment. Personally I prefer to have the free cash for me to divert to other locations, but that’s me. For RSPs, here’s the lowdown:
Dividend reinvestment IS Both available BCIP Dividend withdrawal SBP Both available MIP Dividend withdrawal
4. Payment Modes and Order Execution
Another straightforward factor of consideration…:
Payment mode Order execution IS Debit from DBS/POSB a/c* Debit on 15th, buy BCIP Debit from OCBC a/c Debit on 22nd, buy SBP GIRO into SBP cash ledger Debit 6BD from 18th, buy on 18th MIP GIRO into KE prefunded a/c Debit 1st BD, buy on 8th
… with some specific details on mechanisms:
- The SBP cash ledger is a special ledger created for the purposes of the SBP. It is not the Phillip Money Market Fund and pays no interest. Dividends, if any, are paid into the cash ledger and can be withdrawn accordingly. Don’t have to worry about this. Nonetheless, you will still need to create a POEMS account first. Both KC or prepaid can be used for the SBP.
- The KE prefunded account is a pre-requisite to the MIP. You will have to create a prefunded account in order to use the MIP. Dividends, if any, are paid into the prefunded account. You can also use the prefunded account to execute ordinary trades.
- EPS (Electronic Payment for Shares) and CDP (SGX Central Depository) facilities are not required for any of the RSPs, though they are always good to have.
- On the respective order execution dates (15th, 22nd, 18th, 8th), if it falls on a non-business day the order will be executed on the next BD.
- If you are sharp enough, you would realize that GIRO equates to bill payments and can be used to qualify for certain deposit account bonus interest components.
*New IS applications count towards the Invest component of the DBS Multiplier account, but only for the first 12 months of transactions.
5. Selling and other hidden fees
Selling shares is not typically explained in great detail, as most DCA-ers are looking for long-term, buy-and-hold type of investing system. That said, it is still important to understand the fees associated with selling your shares, as well as other hidden fees that are buried in the terms and conditions.
Selling transaction fees IS None BCIP 0.30% of the total sales proceeds or S$5 per counter, whichever is higher SBP Same as POEMS itself MIP Same as KE itself
Other hidden fees - this is largely driven by my personal experience with these products! Which means there could be things that I have missed out e.g. BCIP
- IS: None that I know of - IS is a really simple and efficient product to work with :)
- BCIP: I don’t use BCIP, so I don’t have any hands-on experience with it
- SBP: Dividend charges - while it is listed here that dividends are charged at 1% with a minimum of $1 capped at $50, what’s not mentioned is that this dividend charge is applied per dividend line item. For example, just last month (March 2019), Mapletree Industrial Trust (ME8U) did their 3QFY18/19 and advanced 4QFY18/19 distribution, at 3.07 cents and 1.71 cents per unit, on pay dates of 8th March and 26th March respectively. However, due to either legal or tax reasons that I have yet to understand fully, typical REIT dividend distributions are split across multiple line items, such as that listed here. As such and rather incredulously, the SBP dividend charge is applied across each line item. What’s more, for every line item that do not meet the $1 minimum, the entire dividend line item is forfeited. Therefore, the best way to really mitigate this is to accumulate sufficient units and transfer them into your CDP ($20.40 per counter inclusive of GST) when the time comes. I did write to Phillip complaining about the application of the dividend charge in this manner, but I didn’t manage to effect any change. To be honest, in view of the cheap SBP transaction fees relative to actual monthly DCA execution via other means, I will just have to live with this for now.
- MIP: based on my experience, the MIP in itself is rather transparent. The thing to note here however, is that the associated KE Prefunded account comes with its set of charges and fees, such as the foreign custody fee for non-CDP securities. In my view, these charges are fairly reasonable by Singapore market standards.
6. Other factors of consideration
It must be mentioned that the factors that I am listing below must be weighed against all the prior pointers, especially transaction fees. For example, low transaction fees could jolly well compensate for bad user experience, depending of course on how low is low and how bad is bad. It’s all subjective anyway. Also, goes without saying that a good user experience is preferable to a bad one, ceteris paribus.
POSB IS is definitely the easiest to work with and get started
IS is hands-down the simplest of the gang to get started with investing and DCA. First of all, it is probably accurate to say that every Singaporean son and daughter has a POSB account of some sorts, likely to be the Savings account. That’s already half the requirements for IS - the other half is to have iBanking. After which you can simply log on and kick start the RSP. No additional account, no GIRO arrangements, no additional platform or portal to log on. No fuse no nothing. And it’s really transparent in terms of transaction costs. For these reasons, IS is my favorite for its pure and joyful simplicity. POSB Savings account + IS was also how I got started as well.
By extension, even though I don’t have any hands-on experience with the BCIP, I can imagine it to be as simple as the IS within OCBC internet banking, relative to the SBP or MIP.
The DBS/POSB iBanking user experience is not be taken granted for
If you are like me and never had prior experience in using any other internet banking platforms beyond DBS and OCBC, then you would really take their UI/UX (user interface/user experience) for granted. While the POEMS platform is what I would deemed as acceptable, the KE platform is rather horrendous. I am no UX expert but there are definitely plenty of areas of improvements for both POEMS and KE. You can stick a query into Google Images to sneak a peek at both. I could feel like I was using a Bloomberg terminal with way less platform capabilities.
What IS lacks in ETF and general coverage, SBP and MIP more than makes up for it
That said, IS only provides two ETFs, the G3B and A35. Even for a lazy portfolio consideration, this is insufficient. A Singaporean lazy portfolio could look like something like IWDA.LN + ES3 + A35, or any other variation on global equity exposure, local equity exposure, local bond exposure (e.g. MBH), with or without EM exposure (e.g. EIMI.LN), small cap exposure or alternatives exposure (e.g. REITs).
With this, IS is in itself definitely insufficient even for the laziest of portfolios. In terms of ETF coverage, both SBP and MIP is much broader, allowing DCA access into ES3, A35, MBH, CLR, as well as OVQ.
(In particular, OVQ is one that I particular watched and took a slightly deeper look)
Therefore, it seems ideal to complement IS with either of SBP and MIP (MIP especially for DCA access to non-SGX securities), or simply skip IS all together.
IS can be used to fulfill DBS Multiplier Investment component, while SBP/MIP GIRO deductions can be used to fulfill GIRO bill payment requirements for OCBC 360 etc.
This one is trivial. New IS applications count towards the Invest component of the DBS Multiplier account, but only for the first 12 months of transactions. (If you already had IS running off another DBS/POSB account, simply switching the funding account to the DBS Multipler account counts as a “new IS application”.) On the other hand, GIRO deductions used to fund the SBP or MIP can count as bill payments for accounts like OCBC 360 and UOB One.
Finally, my personal implementation of DCA includes the IS, SBP, and MIP.
I decided early on that the BCIP seems expensive relative to the others. Having started out with IS, I now use IS for G3B and A35, SBP for OVQ, MBH, and a variety of REITs and stocks, and MIP for JNJ.N. That said, what that works for me may not work for you. Do your own research!
That’s all for this post, hope you gained a little something. Thanks for reading :)