How to Invest Your SRS Funds Easily Through ETFs

Still sleeping on your SRS funds? This is your wake-up call to do something with them, or slowly watch its value erode especially in today’s high-interest rate environment. If you need to take a reference from what others have already done, here’s what other Singaporeans are investing their SRS in.

Psst, if you didn’t already know, the funds in your Supplementary Retirement Scheme (SRS) are only earning 0.05% p.a.

And no, even though most banks have raised their interest rates over the last 2 years, this does not apply to your SRS account. Go ahead and check – you’re still only earning 50 cents for every $1,000 saved. If you had maximized your SRS contributions to reduce your income tax, that’s only $7.65 on every $15,300.

The state of SRS funds today

If you’ve been sleeping on your SRS funds, this is a wake-up call to do something with them.

SRS statistics – the latest released by the Ministry of Finance (MOF) just 7 months ago in December 2022 – show that the most popular tool among SRS investors are shares, REITS and exchange-traded funds (ETFs), followed by insurance products  and unit trusts. SRS cash inflows into local ETFs have also more than doubled in recent years. What’s more, the number of SRS account holders has almost doubled in the last 3 years alone.

However, about 1 in 5 continue to leave their cash sitting idle in their SRS accounts – which can be unfortunate because you’re only earning 0.05% p.a. interest.  If you’re among that 21%, this essentially means that your money is losing purchasing power – especially in today’s climate where inflation has steadily climbed to more than 5%.

ETFs continue to be popular for many SRS investors, and it is easy to see why. Since your SRS funds are likely being parked away for the long run, this also makes it a fuss-free way to get potentially more than what the banks will pay you on your SRS account.

Investing your SRS funds in SGX-listed ETFs

If you don’t have the time to do extensive research on individual stocks, then investing in ETFs and unit trusts could be an easier approach.

Between the two, most unit trusts tend to be actively managed, where the fund manager seeks to outperform the index instead of just replicating its performance. As a result, most unit trusts tend to charge higher fees, and you can often only buy them through the banks or financial advisors – which typically incurs a one-off sales charge and/or redemption charges as high as 5%.

Note: With the rise of disruptive robo-advisory platforms such as MoneyOwl or EndowUs, we now have access to lower cost unit trusts.

On the other hand, ETFs generally tend to track a passive index and are hence able to charge lower fees. For instance, reputable ETF managers – such as Nikko Asset Management – usually charge fees below 1% p.a.

As a result, investors seeking a lower-cost approach can consider ETFs over Unit Trusts.

What are the most popular ETFs among SRS investors?

Among the top 10 ETFs traded by SRS investors, 4 of them are managed by Nikko Asset Management, so here’s a closer look:

ABF Singapore Bond Index Fund (SGX:A35)

With $1 billion of total assets under management, the ABF Singapore Bond Index Fund is among the largest local bond ETFs since its launch 18 years ago.

About 80% of the ABF Singapore Bond Index Fund is invested in bonds issued by the government of Singapore. The other 20% is spread across bonds issued by government linked entities (e.g. HDB, LTA, Temasek and SP Power Assets.)

Read more about how the ABF Singapore Bond Index Fund works here.

Nikko AM Singapore STI ETF (SGX:G3B)

The Nikko AM Singapore STI ETF is another top pick by many SRS investors, as it tracks the return of the top 30 Singapore-listed companies and has been around for 14 years.

The STI Index also has one of the highest dividend yields when compared with other global market indices based on the average dividend yield across the last 10 years². It is thus no wonder that this appeals to investors who wish to invest in familiar grounds (Singapore) and yet achieve diversification.

Read more about how the Nikko AM Singapore STI ETF works here.

Nikko AM SGD Investment Grade Corporate Bond ETF (SGX:MBH)

I’d previously reviewed the Nikko AM SGD Investment Grade Corporate Bond ETF a few years ago here on my blog when it was first launched. What makes it attractive is that investors can use it to access investment-grade corporate bonds for as low as S$1*, whereas it would otherwise cost them a minimum of $250,000 just for a single bond issue.

* The Nikko AM SGD Investment Grade Corporate Bond ETF trades in minimum lot sizes of 1 unit, which means that you can get access to the ETF with just approximately S$1 at today’s prices (30 May 2023.) Please note that this is excluding any trading or transaction costs.

The Index comprises of bonds issued by recognizable institutions such as DBS Group, HDB, PUB, HSBC, NTUC Income, Temasek, Lendlease, Singtel² and more. Hence, for those looking to get exposure to the corporate bond market without the high sums or higher risk, this might be more accessible.

Read more about how the Nikko AM SGD Investment Grade Corporate Bond ETF works here.

NikkoAM-StraitsTrading Asia ex Japan REIT ETF (SGX:CFA)

As the largest REIT ETF listed on the SGX by fund size, it is no wonder why this is another popular choice among SRS investors.

More people are also investing in REIT ETFs, which has resulted in the total combined assets under management (AUM) more than doubling within the last 3 years alone, with retail investor ownership overtaking institutional investors. This notable trend was first reported in The Business Times on 31 March 2023.

Read more about how the NikkoAM-StraitsTrading Asia ex Japan REIT ETF (SGD Class) works here.

What if I don’t have an SRS account?

Of course, if you haven’t opened an SRS account because you don’t have the need for one yet, you can also invest in the above funds directly as they are tradable on the Singapore Exchange.

What’s more, Singaporeans can also invest using your CPF funds, as the above funds are CPFIS-included investments.

Check out the full list of investments included under the CPFIS here.

Conclusion

Even as we work to increase our take-home salaries, I believe that more Singaporeans should consider using the SRS as a way to legitimately reduce their taxes.

However, with about 1 in 5 people simply leaving their cash idle in the SRS account, this is not ideal…especially in today’s environment of rising interest rates.

If you’re among that 21%, please start to look into your various investment options and explore what would be suitable for you. For more details on what you can invest your SRS funds in (and my preferred SRS investment choices), check out this article.

Thinking of investing your SRS funds? As a reputable asset manager in Asia, Nikko Asset Management offers a wide variety of ETFs for retail investors to choose from with a low fee to help you keep your investment costs low.

Sponsored Message

More details on the ETFs covered in this article can be found here:

Disclosure: This post is brought to you in collaboration with Nikko Asset Management. All research and opinions are that of my own. I highly recommend that you use this as a starting point to understand more about the various ETFs offered by NikkoAM which you can use for SRS and CPF investing, and then click into the respective links above to retrieve the fund prospectus and performance so as to help you decide whether it fits into your investment objectives.

The Central Provident Fund (“CPF”) Ordinary Account (“OA”) interest rate is the legislated minimum 2.5% per annum, or the 3-month average of major local banks' interest rates, whichever is higher, reviewed quarterly. The interest rate for Special Account (“SA”) is currently 4% per annum or the 12-month average yield of 10-year Singapore Government Securities plus 1%, whichever is higher, reviewed quarterly. Only monies in excess of $20,000 in OA and $40,000 in SA can be invested under the CPF Investment Scheme (“CPFIS”). Please refer to the website of the CPF Board for further information. Investors should note that the applicable interest rates for the CPF accounts and the terms of CPFIS may be varied by the CPF Board from time to time.

# Distributions are not guaranteed and are at the absolute discretion of the Manager. Any distribution is expected to result in an immediate reduction of ETF's NAV. Distributions will only be paid to the extent that they are available for distribution pursuant to the Trust Deed and covered by income received from the underlying investments of the ETF.
^Distributions are not guaranteed and are at the absolute discretion of the Manager. Any distribution is expected to result in an immediate reduction of ETF's NAV. Distributions may be paid out of capital which will result in capital erosion and reduction in the ETF's NAV, which will be reflected in the redemption price of the Units.

1 Reference to individual securities are for illustrative purposes only and does not guarantee their continued inclusion in the fund/ETF, nor constitute a recommendation to buy or sell.

2 Source: Bloomberg as of 28 February 2023. The global indices mentioned here are Hang Seng Index, Topix Index, S&P 500 Index, STOXX Europe 600 Index, MSCI AC World Index. Dividend yield of the Straits Times Index is not the same as that of the Nikko AM Singapore STI ETF fund. Past dividend yields are not indicative of future dividend yields.

Important Information by Nikko Asset Management Asia Limited:

This document is purely for informational purposes only with no consideration given to the specific investment objective, financial situation and particular needs of any specific person. It should not be relied upon as financial advice. Any securities mentioned herein are for illustration purposes only and should not be construed as a recommendation for investment. You should seek advice from a financial adviser before making any investment. In the event that you choose not to do so, you should consider whether the investment selected is suitable for you. Investments in funds are not deposits in, obligations of, or guaranteed or insured by Nikko Asset Management Asia Limited (“Nikko AM Asia”).   

Past performance or any prediction, projection or forecast is not indicative of future performance. The Fund or any underlying fund may use or invest in financial derivative instruments. The value of units and income from them may fall or rise. Investments in the Fund are subject to investment risks, including the possible loss of principal amount invested. You should read the relevant prospectus (including the risk warnings) and product highlights sheet of the Fund, which are available and may be obtained from appointed distributors of Nikko AM Asia or our website (www.nikkoam.com.sg) before deciding whether to invest in the Fund.   

The information contained herein may not be copied, reproduced or redistributed without the express consent of Nikko AM Asia. While reasonable care has been taken to ensure the accuracy of the information as at the date of publication, Nikko AM Asia does not give any warranty or representation, either express or implied, and expressly disclaims liability for any errors or omissions. Information may be subject to change without notice. Nikko AM Asia accepts no liability for any loss, indirect or consequential damages, arising from any use of or reliance on this document. This advertisement has not been reviewed by the Monetary Authority of Singapore.  
   
The performance of the ETF’s price on the Singapore Exchange Securities Trading Limited (“SGX-ST”) may be different from the net asset value per unit of the ETF. The ETF may also be suspended or delisted from the SGX-ST. Listing of the units does not guarantee a liquid market for the units. Investors should note that the ETF differs from a typical unit trust and units may only be created or redeemed directly by a participating dealer in large creation or redemption units.  

The units of Nikko AM Singapore STI ETF are not in any way sponsored, endorsed, sold or promoted by FTSE International Limited ("FTSE"), the London Stock Exchange Plc (the "Exchange"), The Financial Times Limited ("FT") SPH Data Services Pte Ltd ("SPH") or Singapore Press Holdings Ltd ("SGP") (collectively, the "Licensor Parties") and none of the Licensor Parties make any warranty or representation whatsoever, expressly or impliedly, either as to the results to be obtained from the use of the Straits Times Index ("Index") and/or the figure at which the said Index stands at any particular time on any particular day or otherwise. The Index is compiled and calculated by FTSE. None of the Licensor Parties shall be under any obligation to advise any person of any error therein. "FTSE®", "FT-SE®" are trade marks of the Exchange and the FT and are used by FTSE under license. "STI" and "Straits Times Index" are trade marks of SPH and are used by FTSE under licence. All intellectual property rights in the ST index vest in SPH and SGP.

The units of NikkoAM-StraitsTrading Asia ex Japan REIT ETF are not in any way sponsored, endorsed, sold or promoted by FTSE International Limited ("FTSE''), by the London Stock Exchange Group companies ("LSEG''), Euronext N.V. ("Euronext"), European Public Real Estate Association ("EPRA"), or the National Association of Real Estate Investment Trusts ("NAREIT") (together the "Licensor Parties") and none of the Licensor Parties make any warranty or representation whatsoever, expressly or impliedly, either as to the results to be obtained from the use of the FTSE EPRA/NAREIT Asia ex Japan Net Total Return REIT Index (the "Index") and/or the figure at which the said Index stands at any particular time on any particular day or otherwise. The Index is compiled and calculated by FTSE. However, none of the Licensor Parties shall be liable (whether in negligence or otherwise) to any person for any error in the Index and none of the Licensor Parties shall be under any obligation to advise any person of any error therein. "FTSE®" is a trade mark of LSEG, "NAREIT®" is a trade mark of the National Association of Real Estate Investment Trusts and "EPRA®" is a trade mark of EPRA and all are used by FTSE under licence."

Neither Markit, its Affiliates or any third party data provider makes any warranty, express or implied, as to the accuracy, completeness or timeliness of the data contained herewith nor as to the results to be obtained by recipients of the data. Neither Markit, its Affiliates nor any data provider shall in any way be liable to any recipient of the data for any inaccuracies, errors or omissions in the Markit data, regardless of cause, or for any damages (whether direct or indirect) resulting therefrom. Markit has no obligation to update, modify or amend the data or to otherwise notify a recipient thereof in the event that any matter stated herein changes or subsequently becomes inaccurate. Without limiting the foregoing, Markit, its Affiliates, or any third party data provider shall have no liability whatsoever to you, whether in contract (including under an indemnity), in tort (including negligence), under a warranty, under statute or otherwise, in respect of any loss or damage suffered by you as a result of or in connection with any opinions, recommendations, forecasts, judgments, or any other conclusions, or any course of action determined, by you or any third party, whether or not based on the content, information or materials contained herein. Copyright © 2023, Markit Indices Limited. 

The Markit iBoxx SGD Non-Sovereigns Large Cap Investment Grade Index are marks of Markit Indices Lmited and have been licensed for use by Nikko Asset Management Asia Limited. The Markit iBoxx SGD Non-Sovereigns Large Cap Investment Grade Index referenced herein is the property of Markit Indices Limited and is used under license. The Nikko AM SGD Investment Grade Corporate Bond ETF is not sponsored, endorsed, or promoted by Markit Indices Limited.

Nikko Asset Management Asia Limited. Registration Number 198202562H.