Monday, June 18, 2018

Allow CPF members to invest in an CPF index fund

Many CPF members complain about the low rate of interest paid on their accounts - 2.5% for the ordinary account and 4% for the other accounts.

They have the option to invest in shares using the CPF Investment scheme. However, some members had bad experience with this scheme the past or are not familiar with how they can make the investment.

I suggest that CPF should set up one fund, which is well diversified in shares, as an option for members. This fund can be invested in the top 30, 50 or 100 blue chip shares in Singapore. It should have low management fees, e.g. 0.2% per annum.

CPF members can apply to transfer some savings from their ordinary or special accounts to be invested in this index fund.

The top 30 shares in Singapore, covered by the Straits Times Index, earned an average return of 9% per annum (or maybe slight lower) during the past 20 years. While the return may be volaltile from year to year, the long term average is quite attractive. Investors can be educated to take a long term view.

At present, the CPF members can invest in the STI ETF using the CPF Investment Scheme. But it is too troublesome for most people.

If the CPF set up its "index fund" option, it would be much easier. More people will choose this option and get a better long term return. They will not complain about the low rate of interest on the default CPF savings, because they have the option to take some risk and get a higher return.

Tan Kin Lian

Tan Kin Lian

1 comment:

Anonymous said...

Personally I doubt the present government is interested in getting more people to use their CPF savings for investment - they would rather use the cheap money for their own investing through GIC/Temasek etc

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