CPF (Central Provident Fund) is one of the most important assets for retirement planning in Singapore. But it is often under-invested.

CPF board pays you an almost guaranteed interest rate for your savings, and this interest has never changed over the past 15 years, and only recently there was a small adjustment (0.01%) made to the CPF interest rates in Q3 2023.

Many people don’t know that you can invest your CPF to earn a potentially higher return.

There are a variety of instruments approved for CPF investment, such as insurance products, unit trusts, ETFs, stocks, and bonds. This article will explain to you how to invest your CPF and what are your options.

There are some internet narratives that say you shouldn’t invest your CPF because you already earn a good interest, and you should just invest cash savings. Finance 101 tells us that CPF interest is merely a “risk-free” return and this is no reason to stop you from investing.

If you check the history of Singapore’s 10-year government bond yield, it was more than 5% in early 2000. Does it mean that nobody should have been investing at that time?

The only difference is that since your CPF pays you risk-free interest, you should have a higher “required rate of return” for your CPF investment. That is all.

What is CPF Investment Scheme (CPFIS)?

The CPF Investment Scheme (CPFIS) gives you the option to invest your Ordinary Account (OA) and Special Account (SA) savings in a wide range of investments to earn potentially higher returns than the CPF interest rate for your retirement. You can invest your CPF savings in various instruments such as insurance products, unit trusts, fixed deposits, bonds and shares.

CPF investment has a long history. Ordinary Account Savings was first allowed to invest under the Approved Investment Scheme in 1986. Over time, the scheme evolved into the CPF Investment Scheme (CPFIS) known today. To prevent you from taking excessive investment risks, limits were set on the number of investible funds and the type of financial instruments.

What do you need to know before using your CPFIS?

The most important thing to remember about CPFIS is that any returns you get will go back to your CPF accounts. That means you should ideally be investing with the future in mind.

Another common misconception is that people believe if they lose money, they must repay CPF. However, that’s not the case. Unlike buying properties with CPF, where you need to pay accrued interest upon selling the property, investment losses do not require repayment to CPF.

How can you get started with your CPF investment?

If you want to invest your CPF savings, you have two options.

• You can make investment decisions by yourself, or
• You engage a financial adviser to assist you.

Either way, you need to first open a CPF investment account with DBS, OCBC or UOB if you want to invest your Ordinary Account savings. The bank is the “agent bank” to administer your CPF funds.

Before you can open a CPF Investment Account, you must take a Self-Awareness Questionnaire (SAQ).

This is a CPF requirement aiming to help you understand:

• Investment concepts such as the risk-return relationship
• What you should consider before investing; and
• Investment products and charges under CPFIS.

Although the bank is authorized to withdraw your money from CPF and put it into investment vehicles, it doesn’t mean that you have to purchase investment products from the banks. The cost-effective way is to transact your CPF investment through CPF Investment Administrators if most of your investments are funds.

In addition, there is no need to open a CPF Investment Account if you wish to invest your Special Account savings.

What are CPF Investment Administrators?

A CPF Investment Administrator can collate your purchases of funds from different fund houses and submit them to CPF collectively. In this case, you will only need to pay for one transaction each time, no matter how many fund houses you purchase from.

There are 4 CPF Investment Administrators:

• iFast Financial Pte Ltd
• Navigator Investment Services Ltd (owned by Aviva)
• Phillip Securities Pte Ltd
• UOB Kay Hian Private Limited

What can you invest in using your CPF?

Under CPFIS, you can invest your OA savings after setting aside $20,000 in your OA or after setting aside $40,000 in your SA. 

You’ll notice that there are 2 different requirements for the CPF account balance.

And that’s because they are for 2 different CPF investment schemes: 

• CPFIS-Ordinary Account (OA) and 
• CPFIS-Special Account (SA).

Overall, here are the specific instruments approved by CPFIS-OA and the CPFIS-Special SA that you can invest in:

Take note that up to 35% of investible savings can be invested in:

• Shares
• Property Funds
• Corporate Bonds

And up to 10% of investible savings can be invested in:

• Gold ETFs
• Other Gold products (such as Gold certificates, Gold savings accounts, Physical Gold)

On a side note, you can also invest in other Gold products (such as Gold certificates, Gold savings accounts, and /or Physical Gold) using your Ordinary Account savings, but you have to invest through UOB and your CPF investment account must be opened with UOB as well.

To give you a clearer picture, I’ll paint a scenario for you.

Say you have $200,000 in your CPF-OA (this is your total investible savings).

If you withdrew $80,000 for housing, you’re left with $120,000 in your OA. But you still need to set aside the $20,000 which you can’t touch. That means the amount you can invest is capped at $120,000 – $20,000 = $100,000.

But there are sub-limits for shares and gold investing: 

• For stocks (up to 35% of investible savings), you can invest up to $42,000.
• For gold (up to 10% of investible savings), you can invest up to $12,000.

However, if you were to invest in unit trusts, you can utilize the full $100,000.

Using insurance for your CPF investment

There is a long list of insurance products that you can buy. In the past, you used to be able to buy endowment plans, but nowadays your only option is investment-linked policies.

The reason is simple, almost all the guaranteed returns from the insurance products are lower than the CPF interest rate, which is risk-free. 

But since we all know investment-linked insurance policies carry high costs, I wouldn’t recommend you consider any of those products.

Using Exchange Traded Funds for your CPF Investment

ETFs have gained popularity in recent years, but there are still very limited choices of ETFs in a CPF investment. There are only six CPF-approved ETFs listed on the SGX:

• SPDR Straits Times Index ETF (SGX: ES3)
• Nikko AM Singapore STI ETF (SGX: G3B)
• ABF Singapore Bond Index Fund (SGX: A35)
• SPDR Gold Shares (SGX: O87)
• Nikko AM SGD IG Corporate Bond ETF (SGX: MBH)
• Nikko AM ST Asia ex Japan REIT ETF (SGX: CFA)

You can invest in ETFs through authorized stock brokers. No ETF is available as a Special Account investment for now.

You need to take note that you can only invest up to 10% of your investible savings in the Gold ETF.

Using stocks for your CPF investment

Not all stocks are eligible for CPF investments. You can only invest in Singapore stocks using your CPF money. To find out which stocks you can buy, go to this link on the SGX website. You will get the list of the stocks as shown below.

As mentioned earlier, you can only invest up to 35% of your investible savings from your Ordinary Account and no stock is available as a Special Account investment for now.

Using Fixed Deposits & Bonds for your CPF Investment

There are 4 banks approved by CPF to provide fixed deposit products:

• DBS Bank Ltd
• Maybank Singapore Limited
• Oversea-Chinese Banking Corporation Ltd
• United Overseas Bank Ltd

All Singapore Government Bonds including Treasury Bills are included under the CPFIS. However, Singapore Savings Bonds are not eligible.

In the past when the interest rate was less than 1%, no right-minded person would buy a fixed deposit or Singapore government bonds using CPF. But now given the high interest rate offered, you can consider buying T-Bills using CPF. And most banks allow you to transact this online.

Using unit trusts for your CPF investment

Unit trusts don’t have a good name in Singapore, partly because it is the most mis-sold product here. Unfortunately, many people purchase a unit trust through banks or insurance agents who are commission-based advisers. Banks are the largest fund distributors in Singapore.

Think about it, a typical salesperson will only present you with a fund that has already performed very well in the past few years or one that is “hot” now. Just look at how many technology funds are being marketed aggressively today after their stellar run in 2020. But will these performances continue or will you end up buying just before the tide turns?

Additional reading: How to dig below the sales pitch for a unit trust.

I often hear people say, “I lost money in my CPF investment because I invested in some unit trusts”. It is almost like when your child knocks himself on a table, some parents hit the table and say “Bad table”.

Blaming your investment losses on a unit trust is naive. It is not the fund that lost your money, it is because you chose the wrong underlying market.

In this article, I discussed famous Hedge fund manager Ray Dalio’s investing “principle” and “ego investing”. Most people have difficulty admitting they are wrong. Shifting blames irrationality to other people or products can pacify you in the short term, but it does not solve the long-term problem.

Additional reading: “What are Hedge Fund Billionaire Ray Dalio’s investment principles about being wrong”.

By now you should realize that it is nearly impossible to set up a global multi-asset investment portfolio using investment options other than unit trusts.

And with the latest CPF ruling, sales charges are completely scrapped for CPF investmenting. It makes unit trusts even more appealing as a CPF investment.

Low-cost CPF investment using unit trusts

The CPF Board has taken measures to progressively lower the cost of investments and improve the quality of funds under the CPF Investment Scheme, though the progress is painfully slow. The process started in 2006 and only until today, the sales charge is capped at 0% for all CPF investments. The wrap fee is also capped at 0.4% per year now.

In case you don’t know, a wrap fee covers all the bundled investment services, including advisory, brokerage and administrative costs.

If you are a DIY investor, you don’t need to pay any wrap fee.

Finding the list of unit trusts approved by CPF is very simple. Got to FSM Fund Selector. Select “Payment Method” to be “Included Under CPFIS OA” and “Included Under CPFIS SA”, and then click the “Generate Funds Table” button.

You will get a list of funds as shown below.

Should you use a financial adviser to assist with your CPF investment?

In this article, I shared that an HSBC survey shows that people who engage financial advisers have a higher chance to achieve their retirement goals than those who don’t. But that is provided if you engage the right adviser.

Additional Reading: 4 simple steps for better retirement planning.

Early on, I mentioned the word “wrap fee”. The original intention of the wrap fee is for you to engage a financial adviser’s service on an ongoing basis at a retainer fee. However, the wrap fee is being charged by both commission-based and fee-based advisers in the current system. Let me explain.

“Financial adviser” is a very broad term in Singapore. There are two main types of financial advisers:

• Licensed financial advisers (Licensed FAs) – mostly independent financial advisers.
• Exempt financial advisers (Exempt FAs) – mostly banks and insurance companies.

Additional Reading: How to work with a financial adviser.

In your dealing with a financial adviser, you may arrange the relationship in one of two ways:

• Commission-based
• Fee-based

As you probably can tell by now, most advisers from the banks and insurance companies are commission-based, they “sell” a fund to you in exchange for the “sales charge” as their commission. And only a small percentage of independent financial advisers are fee-based. 

A real fee-based financial adviser does not “sell” any funds. Their jobs are to manage your portfolios.

“Show me the incentive and I’ll show you the outcome.” – Charlie Munger

As a fee-based financial adviser myself, I have been waiving all sales charges for my clients for the past decade, even though the 0% sales charge cap was only implemented as of 1st Oct 2020.

I believe that portfolio asset allocation is more important than stock picking or a buy-and-hold strategy. Only when the commission is removed from the relationship, will you receive the best advice.

What happens to your CPF investment if you pass away

Proceeds under CPF Investment Scheme (CPFIS) are not covered under the CPF nomination. If you pass away, your investments under the CPFIS and any cash held in this Investment Account with your agent bank will form part of your estate. Check out more details here.

To conclude

I have laid out all the investment options under the CPF investment scheme.

Like it or not, a unit trust is the most suitable instrument to build a global multi-asset portfolio under the CPF investment scheme. If you want to invest your CPF successfully, you need to put your bias and ego aside.

You can choose to invest in CPF by yourself or engage a financial adviser for help.

But I want to highlight to you this Business Times article if you used to purchase funds through a commission-based adviser. 

“Bank distribution, which generates the lion’s share of fund sales…have indicated their reluctance to market funds for CPF savings, now that they cannot receive any sales charge.”

The article also says that “the caps (of wrap fee) may spur (commission-based) advisers to sell higher-cost funds, which pay higher trail fees. Trail fees are the portion of fund annual management fees paid to distributors.”

As an independent financial adviser, I help people review their existing retirement plans and set up investment portfolios. If you want an independent review and advice for your CPF investment, submit your application via the form below for a non-obligatory discovery meeting.

By the way, I have a Beginner’s Guide to CPF Investment, which you can download here.

Or click this link to download: https://bit.ly/invest-cpf-guide