Today I got an interesting question by reader Kah in response to my article comparing ETFs tracking the Singapore Straits Times Index. Kah asked me whether it makes sense to POSB Invest Saver Plan and how fees matter in this case. Read on for the full analysis!
Update October 2016: Please note that this article is outdated. Standard Chartered has now introduced a minimum commission which makes the POSB Invest Saver the better choice, hands down.
“I found this option (Nikko STI ETF) under the POSB Monthly Investment Plan and planned to have this investment over a 5 Year period with monthly input of $100 (60mths x $100), and sell it at end of the 5th year mainly to benefit from its capital appreciation. Would the Expense ratio be a cause for concern in my case?”
Over the total 5 years life of the investment Kah will pay SGD 64.05 in expenses to the Nikko STI ETF since it has an expense ratio of 0.42% per year. If the expense ratio were cheaper, let’s say 0.30% which is offered by the SPDR® Straits Times Index ETF Kah would only pay SGD 45.75.
The difference is rather small in the case of the expenses.
Currently the POSB Invest Saver Plan charges a 1% sales charge. This means that Kah will pay exactly SGD 60 in commissions to POSB for buying the funds for him. If they would buy them directly using Standard Chartered’s online trading tool he would only pay a commission of 0.20325% or SGD 12.2.
Total cost overview for Kah’s scenario
|POSB Invest Saver Plan||Buy SPDR® Straits Times Index ETF directly||Buy Nikko AM Singapore STI ETF directly|
|Total cost over 5 years||SGD 124.05||SGD 57.95||SGD 76.25|
Why I still recommend the POSB Invest Saver Plan in this case
Yes, paying 1% sales charge seems quite costly, but given the small monthly investment of SGD 100 buying regular lots of the ETFs directly would be very troublesome and Kah would only be able to buy once every quarter making them more vulnerable for market fluctuations.
The POSB Invest Saver Plan is a great “set it and forget it” solution and is especially suitable lower monthly investments. At the time of writing there are “no exit or redemption charges”. Comparing this with the outrageous fees of some unit trusts the POSB Invest Saver Plan is fairly priced.
The POSB Invest Saver Plan gives people an easy option to participate in the Singaporean stock market and ensures regular investment through automatic giro deduction. Overall: Thumbs up!
POSB Invest Saver Plan not recommended for high monthly investments
If you plan on investing more than SGD 400 per month in the Singapore Straits Times Index you would be better off buying the funds directly.
Hope this helps!