Saturday, 27 September 2014

CPF Board to reduce Total Expense Ratio for CPFIS funds to benefit members

Thousands of CPF investors could gain from new rules
By Mok Fei Fei, The Straits Times, 26 Sep 2014

TENS of thousands of investors could benefit from new rules that have cut the cost of investing Central Provident Fund (CPF) money in approved funds.

The CPF Board said yesterday that it will place a lower cap on the total expense ratio (TER) for unit trusts and investment-linked insurance products under the CPF Investment Scheme (CPFIS).

Reductions of between 0.2 and 0.3 percentage point will be imposed, depending on the risk profile of the CPFIS funds. This will save CPF members $20 or $30 on a $10,000 investment.

The new cap will apply to 233 funds - 90 unit trusts and 143 investment-linked insurance products. About half can meet the cap.

The CPF Board does not have exact figures regarding the number of people who could benefit but 901,000 CPF members had invested $20.4 billion of their Ordinary Account savings at as end-June, and 402,000 had invested $5.61 billion of their Special Account funds.

Funds in excess of $20,000 in an Ordinary Account and over $40,000 in a Special Account can be invested in approved instruments, including bonds, stocks and exchange-traded funds.

Only unit trusts and investment-linked insurance products are affected by the move as they typically have higher total expense ratios, which is the percentage of a fund's assets needed to pay for the operating costs.

The CPF Board said the new cap was taken based on the median total expense ratio of approved funds.

The lower caps will kick in over two phases: new CPFIS funds must abide by the change from Oct 1. Existing funds have until Jan 1, 2016.

Funds that do not comply with the new caps will not be able to take in new CPF investments.

Industry players said the move would improve efficiency and allow consumers to enjoy lower costs.

Life Insurance Association Singapore president Khoo Kah Siang told The Straits Times yesterday: "Across the board, we may see a shorter list of funds based on the adjusted criteria for unit trusts and investment-linked insurance products under the CPFIS."

Ms Eleanor Seet, president of Nikko Asset Management Asia, added that while the move is laudable, more needs to be done to raise investor awareness of such long-term investments.

"From a solutions provider's standpoint, scale is necessary to afford lower fee structures," she said. "We hope that the lower total expense ratios will encourage more investors to participate, and this will in turn help to drive cost-efficiency."


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