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The Rules Of CPF Investment
Education | 25 June 2010
By: Louis Kent Lee
Articles (199) Profile

Central Provident Fund (CPF) is something, which is not a foreign term in the local context. What might seem foreign and a tad bit confusing will be the part where investments are made using CPF funds. The barometers in place before utilising CPF funds would be that the said person has got to be at least 18 years of age, not an undischarged bankrupt and has more than $20,000 in his or her Ordinary Account (OA). This will allow the holder to invest under the Central Provident Fund Investment Scheme (CPFIS).  In addition to the barometers above, the CPF account holder would need to have $30,000 or more in his or her special account before investments can be made under CPFIS-Special Account (SA). The SA minimum will be raised to $40,000 from 1 July 2010.

What this means is that the user will only be able to invest anything in excess of the minimum that is set for the OA and the SA. For instance, if the user has $30,500 in his OA, he or she will only be allowed to use $10,500 for investment purposes. Same concept applies for the SA account. The table below, in accordance with information provided from the CPF website http://mycpf.cpf.gov.sg/Members/home.htm, outlines the investment instruments that are available for both the OA and the SA under the CPFIS.

From the table above, it is easy to be barraged by an influx of such information. Whether or not you are a novice investor or a seasoned one, it is advised to have your investment portfolio diversified so that the risks taken in one particular stock can be offset by another investment in the portfolio. Other than the fact that shares can only be purchased in accordance with the “Approved” list of CPFIS, the main difference between trading shares using CPFIS and that of normal shares trading is that a CDP account need not be set up for shares trading under CPFIS. In order to make an investment in any of the financial instruments listed above, one has got to set up a CPF investment account first with any of the following CPFIS agent banks.

CPFIS Agent Banks

They are namely DBS, OCBC and UOB. However, only UOB offers gold related investment products e.g. (Gold ETFs), if one is interested in investing in such investment products, an investment account with UOB has got to be set up in order to process such transactions. Having said that, one is only allowed to maintain one investment account at any one time.  As for transactions using the SA, no investment account is required to buy or sell a particular financial instrument. One could approach the product providers directly.

Due to the fact that CPFIS is meant for one’s retirement use, withdrawal of profits made from the investment account is not allowed. In addition to that, gains and interest earned from the investments are non taxable. However, unless stated otherwise, individual income tax will be imposed on the dividends received from the investments you hold. For losses incurred from the investments, it is up to one’s discretion to top up the losses in their CPF investment account.

Regardless of one’s appetite for risk, one should exercise prudence and do ample research and assessments prior to putting their money into the investment instruments listed in the table above. Although money is not everything in life, not having money is something you don’t want in your life, not when your life after retirement depends on it.

Louis is a qualified accountant with the ACCA, and is the Research Editor at Shares Investment magazine.

Please click here for more information about this author.


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