It is such a pity that many people do not use CPF’s Investment Scheme, also known as CPFIS. Under this program, holders of CPF Ordinary Account or Special Account can put their money to work by investing in a wide range of investment products, such as property funds, bonds, stocks, exchange-traded funds, unit trusts, and investment-linked insurance plans. These investments can earn a profit above the 2.5% interest that CPF accounts provide, giving you more money for your old age.
Not everyone is eligible for CPFIS, of course, but the requirements are not terribly hard to fulfil. To qualify for this investment scheme, you need to be 18 years old or above, must not be an undischarged bankrupt, and have either more than $20,000 in your Ordinary Account, more than $40,000 in your Special Account, or both. Once you fulfil these conditions, you can start investing your CPF money.
It is worth noting that not all of your CPF savings can be invested. You must maintain at least $20,000 in your Ordinary Account or $40,000 in your Special Account at all times, and only use the excess for investment. In addition, CPF also enforces stock and gold limits, which mandates that only up to 35% of your investible savings can be invested in stock and 10% in gold. Investible savings in this context is defined as the sum of your Ordinary Account balance and the amount of CPF money that you have withdrawn for education and investment.
Naturally, any investment does come with certain risks. Therefore, you should carefully weight your risk tolerance before you decide to enrol in CPFIS. That being said, you should know that investment is not a take-all/leave-all choice; depending on your risk tolerance level, you can find an investment product whose risk level suits yours. Just because you have a low risk tolerance does not mean you cannot invest at all!
For your reference, in the year ending September 30th 2016, 441,000 account holders or 78% of those who enrol in CPFIS – Ordinary Account enjoyed profits beyond the 2.5% risk-free interest rate. Of the remaining 22%, 10% - 60,000 members – made profits equal or less than the 2.5% interest and 12% - 66,000 members – made losses even before taking the normal interest rate loss into account.
Once you have decided to invest, the process is relatively straightforward. If you choose to invest with your Ordinary Account, you need to open a CPF Investment Account with either DBS Bank, OCBC, of UOB. If you decide to invest with your Special Account, on the other hand, you can go directly to the investment product providers and transact with them without the need to open an Investment Account.
When you turn 55, you can apply to withdraw your CPF investments. You may withdraw your Ordinary Account and Special Account investments, plus the cash balance in your Investment Account, but you need to ensure that you have set aside either the Full Retirement Sum or Basic Retirement Sum in your Retirement Account with sufficient property pledge.
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