There are a few beginner investment schemes which allow investors with limited amount of capital to start investing. They are POSB Invest Saver, OCBC Blue Chip Investment Plan and Phillip Share Builder Plan. All of them allows investing from as low as $100 / month, however there are differences between each of them which we will cover.
POSB Invest Saver Can Only Be Used For STI ETF
Firstly, we will take a look at the POSB Invest Saver. This tool can only be used to buy the STI ETF, which consists of the top 30 listed companies on SGX. Unlike the OCBC and Phillip tool which allows you to buy a variety of blue chip stocks, POSB tool only limits you to the STI ETF. It’s not a bad thing though, as it probably makes more sense to have a disciplined savings plan investing in the diversified index instead of just 1 stock.
Sales Charge and Minimum Investment
As mentioned the minimum investment is $100 per month and the sales charge is 1% per transaction. The minimum investment is $100, the minimum sales charge is $1, so there will be no savings on commission if you invest a higher amount. Comparing to investing through most brokerages, where it is generally 0.25%-0.28% per transaction, 1% is about 4 times higher. However, most standard brokerages also have a minimum commission of $25, except for Standard Chartered and now DBS which also offers no minimum commission.
No Exit Charges, Unknown Bid-Ask Spread and No Rounding Issues
Currently, there are no exit or redemption charges, which means there are no charges on sale. However, it is not known what spread you will be paying. It is unlikely for the bid ask spread to be as competitive as buying from a brokerage. The redemption price will also be based on an average price the following day, so it is not known how much you will be getting until you have actually sold which is a bit similar to unit trust.
Since the shares are issued in round figures, the balance amount will be refunded back, unlike the other investment tools. So at least you will not lose out on the rounding down.
Custodian Account
Like the Standard Chartered platform, the STI shares purchased will be held in custodian account and not your own CDP account. It’s not really a big deal as there is generally little shareholder action required for the ETF.
Benefits and Drawbacks
The benefits for using a regular savings plan allows for disciplined dollar cost averaging, which means that your purchase price will generally be at an average price. When the price is high, your dollar amount will buy less shares and similarly when the price is low, your dollar amount will buy more shares.
Also, while it may be beneficial for people who are beginner investors or simply who do not want to keep track of their investments, there is a price to pay in terms of higher commissions. For investors with the Standard Chartered account, if you can save up for a full lot before investing, you can save 0.8% commission, which is about $24 for one lot of STI (assuming its $3).
Another issue is that depending on the amount invested, you will generally be allocated odd lots most of the time. Generally the price for odd lots is worse than round lots, so you may lose out on the spread. It is unlikely for you to get the quoted market price on standard brokerages.