Don’t you agree that the previous definition of Specified Investment Products was way too broad? Now, you’ll no longer have to jump through hoops just to invest in Exchange-Traded Funds (ETFs).
Last month, the Monetary Authority of Singapore (MAS) announced that it would be opening up more investment options to help strengthen retirement adequacy.
One of the changes was to make it easier for local investors to buy Exchange-Traded Funds (ETFs) – index funds that passively track a benchmark.
MAS said it is doing so in response to market feedback that “funds which make limited use of derivatives are relatively less complex and should be made accessible to retail investors” (that’s everyday individual investors like you and I).
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If you ask us, it’s a change that’s long overdue.
Under the new rules, only ETFs that use derivatives substantially will be classified as Specified Investment Products (SIPs). In other words, a number of ETFs – predominantly cash-based ones, those that trade in gold as well as those that use derivatives only for hedging or efficient portfolio management purposes – will migrate from the SIPs camp to the Excluded Investment Products (EIPs) umbrella.
This is great news for individual investors, especially if you’ve been griping over the cumbersome safeguards set in place for SIPs. You will no longer have to go through the hassle of undergoing stringent tests to determine the level of your investment knowledge before you can invest in, say, the SPDR Gold Shares ETF.
Other notable foreign asset-based ETFs that are now also listed on the SGX include: SPDRs S&P 500, CIMB FTSE ASEAN40, Lyxor Hong Kong (HSI) and db x-trackers Euro STOXX 50.
In total, up to 20 ETFs will be converted to EIP status and accessible without enhanced safeguards.
Additionally, you’ll be happy to note that SGX will waive ETF clearing fees for a promotional period of 1 June to 31 December 2015.
So, if you’re eyeing any ETF investments, we hope you will take advantage of this lowered barrier to entry to create a more diversified portfolio.
Wondering if you should invest in ETFs?
As with all investments, investing in ETFs requires you to practise due diligence and do the necessary homework so you understand what you’re getting yourself into. We would not recommend investing in ETFs if you:
- Want potentially higher returns but are not prepared for variable returns which include the risk of losing all or a substantial part of your original investment amount.
- Do not understand how returns are determined or if you are unclear about the factors and scenarios that can affect returns.
- Do not understand the risks associated with the ETF. You should be aware of the risks associated with the use of derivatives by ETFs, including the risk that the provider or counterparty of the derivative defaults.
- Are not prepared to leave your money invested for long periods of time. A longer time horizon is generally preferred to ride out short term price fluctuations. But depending on your investment objective, some ETFs may be suitable for short term trading.
- Are not familiar with the ETF manager and the ETF’s track record.
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