CPF Investment Scheme (CPFIS) was launched by CPF for CPF members to utilise their CPF money for investments and to enhance their retirement egg nest.
For more information on the CPFIS scheme, you can visit the CPFIS scheme website here.
The more important question however, is “should I invest my money into the funds?”
Statistically, the answer is “NO”, you should not invest your CPF savings into those funds.
For the last 10 years, CPF members who invested their CPF money into these approved investment products have not make a lot of money from it, some even lost the CPF money they invested.
For those who did make money, the majority of them could have earned more if they had just kept their CPF money in CPF.
The main reasons for the poor performance was because
• Some of the approved funds charged high management fees
• Lack of knowledge by CPF members (‘Buy Low, Sell High’ is not as easy as it sounds)
• Some of the Products does not provide better returns
1. Some of the approved funds charged very high management fees
‘My Investment Returns’ = ‘How much the fund made’ minus ‘how much the fund manager charges’ Your investment returns are bad if a) the fund did not make more returns than CPF interests (2.5% or 4%) b) your fund manager charges high fees (say 2% of your money) c) a combination of both (a) and (b)
a) Active-managed investment funds (eg Unit Trusts, Fund Management, etc) have not been performing well for the last 10 years as compared to their passive-managed counterparties.
b) While 2% may not sound like a lot of money, the stock market returns about 9% on average per year. To put that into perspective, your fund manager takes about 20% of your returns from you every year. $100 invested over a 10-year period at 9% would give you $237 but at 7% it would only give you $197.
c) If you are not already making huge returns, that managing fee is going to make your returns worse – it could even be the reason why you are losing money.
Read also: Is the New CPF LIFE Escalating Plan a good deal?
2. Lack of Knowledge by CPF Members
If you have no idea what a stock is, what a bond is, what a Unit Trust is, it is generally safer (and better) to leave your money in your CPF accounts and earn the CPF interest. Most people tend to be a little over-confident when it comes to investing, and that usually leads to underperformance.
Investing is more complex than it seems, and it is always better to learn more about it before attempting it. Read up on our blog to know more about how to be better in investing your money.
3. Some of the Products does not provide Better Returns
Singapore Government Bonds (SGBs) and Treasury Bills (T-bills) are IOUs issued by the Singapore Government to borrow money from the public, and in return, the Government will pay you an interest for lending them the money. Singapore’s Government is one of the only few triple-A rated countries in the world that the interest the Government needs to pay on the bonds is always less than 3% – that is not a very high return compared to CPF interest.
The corporate bonds you can buy with your CPF money must be at least of ‘A’ rating. A search on bondsupermart will show that the average interest on these bonds are less than 4%, which is still lower than the interest you earn on your CPF SA. So it is still better to save your money in your CPF accounts.
Side note: Your CPF savings are invested in a “Special Singapore Government Bond”, backed by the Singapore Government and it will pay you the 2.5% and 4% interest on your OA and SA savings. If you use your CPF savings to invest in Singapore Government Bonds, you are simply moving money from a high-interest-paying bond to a low-interest-paying bond, without benefiting from any improvements in the amount of risk you have. Do not do it!