Tan Kin Lian's Blog: Regular savings plan at 1.75% sales charge

Saturday, May 03, 2008

Regular savings plan at 1.75% sales charge

I received an advertising mailer from Fundsupermarket. They offer a range of investments funds with an sales charge of 1.75%, and are available for regular savings plans. Details are shown here.

http://www.fundsupermart.com/main/research/viewHTML.tpl?lang=en&articleNo=2289

The sales charge of 1.75% is even lower than the spread of 3% chargeable for single premium investments by insurance companies. The expense ratio of some of the funds are quite accepable, between 1% and 1.5%.

If you have invested in some of these funds, please share your experience. I shall be contacting Fundsupermarket to learn more about these funds.

10 comments:

Anonymous said...: Kin Lian,
fundsupermart has been around for many years now, and there is a strong following. Many of us have invested profitably (and I mean consistent returns rather than a lucky shot) over at fundsupermart. It's concept of
a. Self-service fund purchase over the internet
b. High volume low sales charge concept attracts a good following of today's internet-savvy investors.

Coupled with the deep knowledge from forumers of sgfunds.com. Unit trusts have become a powerful investment tool today.; May 03, 2008 6:12 PM
Anonymous said...: Mr Tan,
Online distributors such as POEMS and DollarDex offer attractively low sales charge too. For instance, many unit trusts from POEMS are selling at 1.5% and for DollarDex, if one invests a lump sum of 250k, the sales charge is 1%.

bungerstar; May 03, 2008 6:42 PM
Anonymous said...: For the long-term investor, sales charge is not as important as the annual expense fees.

Most of the funds have annual expense fees in the range of 2%. This is too high. As Jack Bogle of Vanguard had pointed out, 80% to 90% of actively managed funds underperform their respective benchmark.

Take for instance a $10,000 investment. Assume returns is 8% p.a. After 30 years we have the following.

A) 0% sales charge, 0% mgt fee
Cash Value = $100,626.55

B) 10% sales charge, 1% mgt fee
Cash Value = $68,510.30

C) 1% sales charge, 2% mgt fee
Cash Value = $56,860.55

For (B), I purposely set an absurdly high sales charge to illustrate it is not as deadly as the annual management fee.

This is because we can think of the 10% being spread across 30 years.

Conclusion? For the long-term investor, watch out for the annual mgt fee.

From Fundsupermart, I only consider the Infinity series to be viable for investment. The mgt fee is about 1% p.a. This is still too high, compared to 0.3% p.a. of Street-Tracks STI ETF

NTUC Income funds (only ID7 sold in biz centers) have pretty low expense ratios (close to 1%). But, there is a policy fee that unnecessarily eats into the returns and should be considered into the mgt fee. So for lower investment amounts, I think it is not good.; May 03, 2008 9:20 PM
hongjun said...: If not wrong, navigator and iFast platform often used by independent financial advisers also offer low sales charge like Phillip Securities wrap account. Phillip Securities wrap account is different from POEMS.

hongjun; May 03, 2008 9:57 PM
Wealth Journey said...: Yes, to gain access to all the 500+ funds in singapore, most IFAs(including dollardex & fundsupermart) are using iFast Platform & Navigator Platform.

That means that the sales charge is arbitrary and can be set to anything below 3%. So if a business feels 1% sales charge is enough, 1% will be charged. However, most businesses are operated to maximise shareholders' value. Thus, the sales charge will normally be at a price point that is acceptable to the mass majority (Which is why it seems 3% is the norm among most IFAs or insurance agency).

For the HNW or mass affluent segment with >$200k investable assets, another new way is to create a Portfolio Bond.. It's quite mature in UK, US .. and "friends providend" is one of the biggest in UK. Using Portfolio bond, you can access most of the private banking products as well as ETFs or whatever using that one investment account.

Maybe Mr Tan would consider setting up something similar in Singapore. I'm sure it will be well received.

Anyway, I am waiting for my MAS license to be a financial advisor and I am already feeling threatened by all these low-cost products. But, I also believe, ultimately, service matters and customers are willing to pay for service (that includes knowledge, sincerity, integrity in dealing with customers).

I would like to raise the standard of Financial Advisors. The term just means agents and money suckers ...and unfortunately.. it might take a while before we can be professionals like in UK or US.; May 03, 2008 10:51 PM
Anonymous said...: Hi Hon Chun,

Thanks for sharing. I briefly read the wrap account.

If I am not wrong, a wrap account charges an additional 1%p.a on-top of the fund charges. If the management fee is 2%p.a., then the total annual fee is a whopping 3% p.a.

I believe from my illustration you would find this high annual expense far exceeds the initial benefit of a low/no sales charge.

Please correct me if my understanding of this wrap account is wrong, thanks.

Btw, Warren Buffet mentioned in a 1996 chairman's letter that most people are better off investing in an index fund. Please see

http://www.berkshirehathaway.com/letters/1996.html; May 03, 2008 11:15 PM
hongjun said...: Yes, from your illustration, it seems the case.

So, should we all follow Buffett's advice on investing in index funds instead?

hongjun; May 04, 2008 1:22 AM
Anonymous said...: Hi Hon Chun,

Warren Buffet held his annual shareholders' meeting yesterday. Again, he has re-emphasized this point.

1. On investing in Index Funds

When a shareholder asked for the single best specific investment idea Buffett could recommend to an individual in his 30s, Buffett said:

"I would just have it all in a very low-cost index fund from a reputable firm, maybe Vanguard. Unless I bought during a strong bull market, I would feel confident that I would outperform...and I could just go back and get on with my work."

2. On the limitations of big funds

How Berkshire would invest differently if it had only a few million dollars to put to work, Buffett advised him to think small.

"That would open up thousands of opportunities," said Buffett. Earlier this year there were "very mispriced bonds" that "we could buy nowhere near enough of to make a difference to Berkshire," but a smaller investor could have exploited. "Most of the opportunities would probably be in small stocks or in specialized bond situations."

Many actively managed funds face similar difficulties as Warren Buffet. The size of the fund is too big to be able to find grossly undervalued investments. As a result, they tend to reflect returns similar to the index. Minus off the fund manager fees (in the range of 2% to 3%) and the retail investor will be very badly off.

It is wise to seek the knowledge of a super-investor like Warren Buffet rather than an insurance agent. I say this because I came across many agents who haven't the faintest idea what investing is about and all they do is plenty of fluffy sales pitch. It is hilarious many probably do not know how to use the financial calculator.

Extracted from: http://money.cnn.com/2008/05/03/news/companies/buffett.am.wrap/?postversion=2008050316; May 04, 2008 9:36 AM
Zzz said...: fundersupermart offer free switchings while POEM don't have; May 05, 2008 9:21 AM
hongjun said...: Hi,

I am pretty sure of the following

• POEMS (the platform that is used for shares trading) does not offer free switching

• Phillip Securities WRAP account for Unit Trusts does offer free fund switching (correct me if I am wrong)

• Navigator and iFAST platforms offer free fund switching

• Fundsupermart does offer free fund switching

Cheers
hongjun; May 05, 2008 9:56 AM