Popular Investment Schemes Singapore | Five Most Popular Investment Types in Singapore

Investment

Investing, when done correctly, can help us grow our wealth, protect us from inflation risk, and even provide a steady stream of passive income (so important in the uncertain times we live in). In this blog, read about the popular investment schemes in Singapore. 

However, with so many investment schemes and products available, it can be difficult to know where to begin. However, as with market observation, the wisdom of the masses can help point us in the right direction.

Popular Investment Schemes Singapore

Exchange-traded Funds (ETFs)

Exchange-traded Funds (ETFs) allow investors to invest in a portfolio of assets without having to purchase individual stocks and shares. Professional trading houses combine these ‘baskets’ to form funds, then sold to individual investors. ETFs typically seek to replicate the performance of an index, so they can be thought of as a “shortcut” to investing in a specific market. The Straits Times Index (STI), for example, tracks the performance of Singapore’s top 30 listed companies. As a result, investing in an ETF that tracks the STI, such as the SPDR STI ETF or the Nikko AM STI ETF, allows you to invest in all 30 companies without purchasing their individual stocks.

You own shares of an ETF but not the underlying assets, which could be any combination of stocks, shares, commodities, or other securities, including derivatives, when you invest in an ETF. ETFs, provide investors with a high level of diversification because they can be composed of various assets and industries. As a result, you should include ETFs in your portfolio to mitigate the risks associated with overexposure to a specific market. ETFs also have lower fees than other investments such as unit trusts, so if you are paying high fees, increasing your ETF holdings will help you pay less.

Supplemental Retirement Scheme

The Supplementary Retirement Scheme (SRS) is a voluntary contribution scheme that allows you to save more money for retirement in addition to your standard CPF contributions. You can currently deposit up to S$15,300 per year into your SRS account. Why would you do this? Of course, you can earn some tax relief on your personal income, which can reduce the amount you have to pay.

However, your SRS account only earns a meager 0.05 percent per year in interest, which is known in financial circles as “peanuts.” More importantly, leaving your SRS funds idle causes you to lose money due to inflation. The strategy for SRS funds is straightforward. Investing is the better option because even low-interest investments, such as bonds, provide a higher interest rate. You can use your SRS account to invest in a variety of products, including:

• Singapore Government Bonds/Singapore Savings Bonds
• Fixed-term deposits (Local and foreign currencies)
• Unit trusts and shares
• Insurance policies (single premium)

CPF Investment Scheme

The CPF Investment Scheme (CPFIS), perhaps the most well-known investment scheme among Singaporeans, allows you to use your CPF funds to invest in various products, including insurance, unit trusts, fixed deposits, bonds, and shares. There are basically two schemes in which you can participate, each with a different source of funds and products in which you can invest.

If you’re not seeing returns that are significantly higher than the CPF OA or SA default interest rates of 2.5 percent and 5 percent, respectively, you might be better off leaving your CPF accounts alone for steady and risk-free growth.

Popular Investment Schemes Singapore – Singapore Savings Bonds

Singapore Savings Bonds (SSBs) are another popular investment product that is sought after as a source of consistent, if not stellar, returns. To begin, what exactly is a bond? In simple terms, a bond is issued by an entity to raise funds from the public, with the promise to repay the face value of the bond on a fixed date and to make interest payments at fixed intervals.

Bond stability is thus determined by the issuer’s pedigree. If the bond issuer is a shady fly-by-night company that primarily deals in beach sandcastles, you would be hesitant to lend them your money. In the case of SSBs, the issuer is the Singapore Government, which has an impeccable reputation. As a result, SSBs are widely regarded as a secure and popular investment.

While SSBs are reliable, they are unlikely to make you wealthy on their own. Recent tranches offer average annual returns of around 1% – and that’s if you hold them for the whole ten years until maturity. Because of their slow and steady nature, SSBs should be used to hold sums of money that you want to protect from inflation erosion. (You usually pursue this preservation angle when you’re nearing or in retirement). While a return rate of less than 1% is unlikely to excite investors, it suffices given that the inflation rate from 2017 to 2019 was less than 0.6 percent.

Real Estate Investment Trusts

If you want to own a piece of Singapore’s gleaming skyline, look into Real Estate Investment Trusts (REITs). A REIT is essentially a professionally managed fund that pools money from thousands of individual investors and uses it to invest in real estate. REITs operate in a variety of ways. Some concentrate on commercial property development, such as shopping malls. Others prefer to buy properties and rent them out to tenants to generate rental income.

REITs are becoming increasingly popular among investors due to their ability to provide both growth and consistent income. Consider a popular shopping mall that gains value as it continues to attract and retain high-paying tenants. As a result, REITs have an undeniably important place in many investment portfolios. In general, you should invest more in REITs as you build your wealth. When shifting your focus to wealth preservation, you should keep REITs that pay consistent dividends.

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