Saturday, May 13, 2006

How to save for a child?


I really enjoyed reading your blog. You never failed to give some of your advice and experience with your readers.

May I know if there are any investment or insurance products suitable for children?

School-going children receive pocket money from their parents. Parents usually save the money into the banks which give very little interest. Are there any suitable financial products which allow this money to grow?


I suggest that you save in an Ideal plan as well, if the saving is at least $50 a month. The saving can be accumulated to meet the cost of tertiary education. I will ask my colleague to call you and explain how this works.

Equity markets are "correcting"

The major equity markets (USA, Japan, Europe) have dropped by about 3% during the past week. It is described as a "correction".

This is healthy, and is to be expected. It is good to have a correction, after moving up strongly for the past 2 years.

I am getting ready to increase my investment. I will probably wait for 1 or 2 weeks before I decide. If the market falls by a further 3 to 5 percent, it will represent good value.

For my current investment, I will keep it fully invested, as a long term investment. I do not wish to get out, because I may miss the turn-around in the market.

Advice: Don't buy structured products

Summary of an article from Dr Money's website:

Structured investments, deposits and guaranteed funds are a popular investment, distributed mostly by banks.

Issuers came up with something like a customised gambling product. The product might take 20 well-known stocks, for example, and let people place bets on which three would appreciate the most over 5 years.

It is difficult to guess the outcome. The odds are structured in such a way to give you a big payout if you win. And it provides you a "guaranteed" minimum return. It looks like a good investment, with no risks and good upside potential.

But it has many negative features.

1. Distributors are mostly banks. Their standard fee is 3 per cent of the amount invested. This charge is deducted from the net asset value of your investment. If you sell your investment immediately after purchase, you would receive back 97 per cent of your investment. Ultimately, the sales commission reduces your yield.

2. Issuers are the architects who design the structured product. They invest your money, after the distributor sends it to them. It is NOT possible to know how much the issuer takes from returns. You can ask the issuer or the distributor but they won’t tell you. It could be, say a fixed 2 per cent per year when total returns are between 2 and 6 per cent.

3. The structured product is linked to return from the underlying investments. If the return is high, the issuers have found a way to give you only a part of the gain, and to keep the excess return for themselves. They cap your return.

You can never know if you are getting a fair return for your money. It depends on how the product is designed.

Friday, May 12, 2006

Insurance Business Center


Dear Mr Tan,

I applause the new initiative from NTUC Income to create the insurance business center.

While many insurance companies invest large portion of their revenue to re-invent their corporate branding, NTUC Income created this business model to benefit your policy-holders where affect them most ... pocket !

Moreover, this business model will guide insurance advisors to be more service orientated and not strictly committing to sales target. A potential customer can be assured that the recommendation by insurance advisors from Insurance Business Centres is genuinely suitable for them and, or their requirement(s).

I have no doubt that this business model will obviously take some time to materialize since this is a brand new concept that seem impossible previously. Clearly this is another resemblance of a budget terminal or budget airlines; but most importantly, does not reduce in it's coverage.


Thursday, May 11, 2006

Be careful about product advertisements

Here is a product advertised by a bank: "Fixed payout of 5.5 %, 6 months after the inception date."

Here are the facts:

- Many customers think that this means 5.5% return for 6-month return, or 11 % per year. This is not correct.

- To make this payout, the fund dips into the its capital. The fund is giving back part of your own investment and calling it a "payout".

- The actual return is linked to products and events which are very difficult to forecast. In this case, "the fund is linked to 6 Asia-Pacific market indices" and their performance over a period of 4 years and 11 months. You do not know what you will get.


30,000 happy policyholders

30,700 policies will have their policies maturing in 2006. The total payout is $623 million. The average payout is $20,300 per policy.

If these policyholders had taken a similar policy from another insurer, they will receive 10% to 15% less than the payout from NTUC Income. Why? The other insurers pay more commission to their agents and give more profit to their shareholders (at the expense of the policyholders).

NTUC Income is able to give a better return to our policyholders because we keep our expenses low, and give more of the surplus to our policyholders (instead of shareholders).

Our recent comparision show that our payout is 10% to 15% more than similar policies taken through our competitors. The difference could be more, for the longer term policies.

It is better to insure with NTUC Income. You will benefit in the long term.

Good return on money market fund

NTUC Income has a money market fund. It will be invested mainly in interbank deposits, which now yield 3.15% pa to 3.38% for maturity of up to 12 months. These deposits are readily available and liquid.

We deduct 0.25% from the money market fund to cover our expenses. This will give a net yield of about 3% for investors. It is very attractive.

As the money is invested with a bank, it is quite safe. Almost like placing a fixed deposit with a bank.

How do you invest in our money market fund? We are launching the Flexi-Cash policy, which is invested in this fund. Watch out for our advertisement in two weeks' time.

Poor return from a policy sold through a bank

A client bought a policy from another insurer sold through a bank. She pays a premium of $50 a month through GIRO. The return is guaranteed to be $10,360 on the maturity date at the end of 15 years.

Is this a good return?

No. The return is 1.85% per annum.

Many people are not well educated. The older folks are being talked into buying a policy that they do not know in details.

My advice. If you are approached to buy a policy through a bank, and you do not know much about it, please ask before you get committed.

Know what you buy.

Client invested another $300,000 in the Combined Fund


I just had the opportunity to come back with a $300,000 from a client who had invested on Growth Fund with us more than a year ago. He knows the potential of this fund. I updated him with a spreadsheet of his investments.

CEO Tan Kin Lian sent this message to my client:

"I have most of my personal savings in the Combined Fund (Growth). I think that it is good for the long term.

Another good fund is Global Equity. I believe, that over 20 years, this fund is likely to earn at least 6% to 8% per annum, and quite safe. It may go up and down, but the average should be within this range. The average for the past 10 and 20 years is closer to 8%."

When I met him last evening, he told me, market seems high now, but it's okay, it is for long term. How old is he? 56.

He said, put the $300,000 in Growth Fund. Wow....

Wednesday, May 10, 2006

Policyholder got an attractive return


I am writing on behalf of my prospect whose NTUC policy is about to mature on 24th June 2006.

When she bought the policy 19 yrs ago, her son was 2 yrs old so based on him going to University at age 21, the NTUC adviser recommended her the 19 year endowment.

She has been quite happy with NTUC having paid quite good bonuses over the years, even during the SARS, Sept 911 & various other difficult periods.

However, recently she was very disappointed when she received your company's letter advising her of her maturity benefit.

Her disappointed was in the vast difference between her gross maturity benefit of $41,458 and the total projected maturity of $45,012. This represents a hefty 7.89% less than the projected $45,012.

Hence, she has expressed her extreme loss of confidence towards NTUC.



The policyholder paid a monthly premium of $102.70 for 19 years. Total premium paid for 19 years is $23,416. The maturing benefit of $41,458 represents a yield of 5.8% per annum.

You can tell the policyholder that the return of 5.8% per annum is quite attractive.

Our payout is about 10% to 15% higher than the payout offered by other insurance companies under a similar plan.

Comparison of premium rates - medical plans

Incomeshield, subject to category limits

Total premium for age 20 to 80
Plan Income Co-G Co-A Co-P

P 47334 NA NA NA
A 32790 36463 42652 42670
B 19648 23127 25650 26765

Total premium for age 40 to 80

Plan Income Co-G Co-A Co-P
P 44456 NA NA NA
A 30651 34209 40265 40320
B 18464 21747 25019 24249

Enhanced Incomeshield, ie "as charged"
Total premium for age 20 to 80

Plan Income Co-V
Preferred 56405 58283
Advantage 40559 44866
Basic 22945 30267

Total premium for age 40 to 80

Plan Income Co-V
Preferred 53141 54777
Advantage 38301 42410
Basic 21511 28508

Tuesday, May 09, 2006

I moved to Global Equity

I have $120,000 of my CPF savings invested in the Combined Fund (Growth) and Singapore Equity Fund. I have just decided to switch these investments into the Global Equity fund.

Here are my reasons.

1. The forecast PE ratio of USA and UK are expected to drop by about 15% to below 16 times. This suggest that earnings may increase by 15% during the next 12 months.

2. The forecast PE ratio of Singapore is likely to increase by 15% to above 16 times. This suggest that the earnings of Singapore companies may drop by 15%.

3. The Singapore market has done very well up to now. It is moving up further, after the general election. I decided that it is time to make a switch.

I continue to have other investments in the Combined Fund (Growth) and in other funds that are invested in Singapore equities.

Do you believe a broker who is driven by commission?

Some brokers and agents prefer to sell the medical or motor insurance plans offered by our competitors.


They earn a higher commission from the competitor.

Although the premium rates offered by NTUC Income are lower, they discourage consumers to buy from us by making statements such as "the service is poor; it is difficult to make a claim".

Do you believe the broker or agent? If our service is poor, why are we able to get a large market share?

Do not believe someone who is driven by their personal benefit. Check out for yourself.

Enhanced Incomeshield

NTUC Income now offers the Enhanced Incomeshield. It pays for medical expenses in hospital "as charged".

A policyholder asked me, "Why is NTUC Income covering 'as charged', when I indicated earlier that this may lead to escalation in medical expenses?"

Here are three reasons.

1. Some policyholders indicate that they are willing to pay a higher premium for the "as charged" plan. We wish to meet the wishes of these policyholders.

2. Our "as charged" plan requires prior approval, except for emergency. This is to allow our medical adviser to give a second opinion of the proposed treatment and to avoid unnecessary treatment. In most cases, approval will be given within one day.

3. We will continue to offer the basic Incomeshield, which is subject to limits for each category of treatment. Our basic plan will continue to be the most affordable in the market.

Initially, the enhanced Incomeshield cost about 15% higher than the similar basic plan, but this difference may widen in the future, based on the claim experience. We will try our best to keep the premium rates at an affordable level for the enhanced plan. It depends on our ability to prevent escalation in medical expenses.

If the gap widens, some policyholders may wish to opt back into the similar basic plan (which will continue to be avaialable) to enjoy the lower premium rates.

Our strategy is to offer a choice for consumers.

Monday, May 08, 2006

Poor return from 10 year endowment

A retiree asked me, "Mr Tan, I took a 10 year endowment from another insurance company (ie not NTUC Income). I paid $1,200 a year. The policy originally projected a return of $14,000 on maturity. It matured recently and I received just $60 more than the $12,000 that was paid. Just $60. Is this a fair return?"

I replied "No. It is a poor return".

She asked, "Why is it so poor?"

I replied, "The insurance company paid high commission to the agent. The investment return during the past 10 years was low. After deducting expenses and the profit for their shareholders, they are only able to just return your premium back to you."

If the retiree had taken a 10 year endowment from NTUC Income, our payout would be 10% to 15% higher. We pay a modest commision to our agent, and our shareholders get only a modest rate of dividend. Most of the returns are given to our policyholders.

Advice: Insure with NTUC Income. We keep our expenses low. We distribute most of the profits to our policyholders. Our shareholders get a very small share of the profits. We are a cooperative society.

Are the stockmarkets too high?

Based on current interest rate, it is possible to justify a PE ratio of 20 times.

Here are the PE ratio of the various markets:

World Price-Earnings
P/E Est. P/E
Japan (Nikkei 225) 43.93 49.64
Singapore (STI) 14.51 16.35
US (S&P500) 17.97 15.59
Indonesia (JCI) 20.27 15.93
Malaysia (KLCI) 15.78 15.91
Taiwan (TWSE) 19.97 15.12
Italy (MIB30) 15.19 14.29
Hong Kong (HSI) 13.32 14.21
Germany (Dax) 14.94 13.95
UK (FTSE100) 15.43 13.37
South Korea (KOSPI) 12.45 13.34
France (CAC 40) 14.68 13.33
Thailand (SET) 10.58 11.59

P/E is calculated on trailing 12 months net earnings (after tax) per share of component stocks.

Est P/E is calculated based on IBES earnings estimates.

Based on estimate PE (ie for next year), Japan and Singapore looks relatively expensive, while South Korea and Thailand looks cheap.

However, at estimated PE of 16 times, the Singapore market still looks acceptable. So, there is nothing to be concerned about.

It seems that the profit is forecasted to drop for Japan, Singapore, Hong Kong, South Korea and Thailand over the next 12 months.

P/E is calculated on trailing 12 months net earnings (after tax) per share
of component stocks. Est P/E is calculated based on IBES earnings estimates.


Safe Deposit Box

Many people queue for a safe deposit box provided by their bank.

Here is another option. NTUC Income has partnered with CISCO to provide a safe deposit box to our policyholders on attractive terms. Their boxes are located at Paya Lebar.

A few policyholders have taken up the offer. We interviewed 30 customers why they like the CISCO service. Here are their views:

- Longer access hours 41%
- Able to get the box immediately 21%
- CISCO branding - 15%
- Stay near to CISCO 13%
- Promotion 5%
- No fixed deposit required 5%

If you or your friend is looking for a safe deposit box, send an e-mail to

Sunday, May 07, 2006

Feedback: Financial Tips for the Young


Many thank for your interesting talk on financial tip for the young . I enjoy your talk. Due to time constraint, I was not able to get some queries answered. I hope to get the answer through e-mail .

1) You mention that the combined fund charges 1% annual fee. May I know the expense ratio of combined fund?

Reply: I am not clear what is being used to compute the expense ratio. Anyway, you can look at the comparison in this webpage by Dr Money:

It shows NTUC Income's expense ratio to be 1% and other funds to be 1.5% to 2.5% per annum.

2) Other than through an insurance plan, can I invest in the combined fund directly through other distributers, such as Fundsupermart, DollarDex, etc

Reply: You can only invest through our insurance plan (Flexi-Link). Our fee is quite low. You only pay a 3.5% upfront spread. If you invest a large sum during our promotion, you give you bonus unit of up to 2%. So, this reduces the upfront fee to only 1.5%. You get some life insurance cover for free. So, the Flexi-Link plan is almost as good as any unit trust.

3) You mention that the return of combined fund since 2003 have exceed the target 6% return per year. Where can I see the information on NTUC income funds, such as benchmark, annual return since inception, turnover ratio, etc.

Reply: you can get the information from this webpage:

4) I understand from the talk that we shall invest in a fund that offer low cost. There is an asset class like ETF exchange traded fund, where the annual charges is only 0.3%, which is lower than 1% for the combined fund. What is your comment?

Reply: Yes, it is good for you to invest in ETF. It comes with low charges.

Actually, a portion of our Singapore Equity fund is invested in ETF. So, we are reducing our annual charge for the Singapore Equity fund to about 0.6% In my view, it is easier to invest through the FlexiLink from NTUC Income.

5) You mention that an investor should be wary of muliple layer of charges when investing in unit trust. Are you referring to a feeder fund that pass the money to mother fund? How can a retail investor find out about these charges? Most of the charges of unit trust are hidden and are not transparent to investor.

Reply: Yes, most of the funds hide this fact. It is quite difficult for you to find out. I am not able to find out myself.

6) You recommended iYoung plan. If I buy iYoung at age 27, can I still remain cover after age 30. If not, what is the alternative cheap term insurance ?

Reply: I suggest that you buy our low cost term assurance now, rather than i-Young (which is intended for someone in the early 20s.

You should make a financial plan now and invest in the Ideal plan with low cost term assurance.

7) Thank you for providing your time, effort and resource to educate the public like me. I enjoyed your talk .

Reply: Please encourage your friends and colleagues to attend my educational talks. A list of talks is given in our website:

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