STI ETF Monthly Investment Plans in Singapore

It's been awhile since my last post. The reason being that I'm currently residing in Sweden for an overseas exchange programme and had been spending the time preparing for this exchange. The cost of living in Sweden is indeed high. A McChicken meal here costs 65 SEK, equivalent of nearly $12 in Singapore. And nope, the portion is the same. The huge expenditure that is going to come with this exchange got me thinking how to recoup the money back eventually. I can only depend on my fixed salary in the future to recoup this expenditure.


However, it is obviously known that the salary is going to be the same every month. How do you maximise this salary that is going to come in every month? INVEST! Like what Warren Buffett once said, "Pay Yourself First". Take out a portion of your salary each month and invest it in monthly investment plans that are provided by POEMS ShareBuilder Plan, OCBC Blue Chip Investment Plan (BCIP) and POSB Invest-Saver. These platforms allow you to invest as low as $100 each month at lower commissions. Once the GIRO instruction goes through, the designated amount will be deducted every month and invested into counters you chose at the start. I highly recommend that you choose one counter to invest in and that is the STI ETF counter. Without going too deep into the subject, STI ETF tracks the STI index and it has been shown that it is very hard to beat the index's return even for seasoned hedge fund managers. So instead of fretting which counters to invest in at the start, I am recommendeding just one: STI ETF



I did a comparison of the three low-cost investment plans and it is shown in the table below.

A few points to note here:

1)  Buying-in Commission

POSB appears to be the lowest cost amongst the three at 1% flat rate. Suppose you choose to invest $100 per month, the commission rate of POEMS itself will be 6%! If you are investing $600 per month, then go for POEMS. $500-$600, you might want to go for OCBC BCIP.

2) Dividend Reinvestment

To me, this dividend reinvestment differentiates POEMS Sharebuilder Plan from the other two. Any dividend from STI ETF will be reinvested the following month. On the other hand, OCBC and POSB only credit the dividend into your bank account. Those who are privy to the power of compounding interest will know that reinvesting dividend will "snowball" your gains over the longer time horizon. Therefore POEMS wins in this aspect.

3) Misc Costs (Dividend Charges, Sell Commission)

After praising POEMS to the sky in point, it's time to point out the elephant in the room. The so-called "hidden costs" in POEMS are pretty high. Any dividend issued by STI ETF will be subjected to a $1 charge. Not mentioned in the table, there are also charges for scrip dividends, corporate actions, insufficient amount for GIRO. Furthermore, the commission that comes with selling the shares accumulated is definitely a downer. From all this, I gather POEMS is trying to attract people that are willing to invest more per month such that all this costs become negligible.
Edit: Self-assisted selling using POEMS is possible at min $25

4) Underlying ETF

The underlying STI ETF that each platform buys differs. However, the difference is minute and should not concern us. For general info, SPDR has a lot size of 1000 shares while Nikko AM has lot size of 100 shares. Also SPDR charges a fund fee of 0.3% per year while Nikko AM charges 0.39%. Again, this only concerns the people running the three platforms.

5) Partial/Total Redemption

POEMS and OCBC allow partial redemption of the shares accumulated. POSB, on the other hand, only allows total redemption. This might be disadvantageous if you are in an urgent need of money. However, since I believe that once you sign up with these investment plans, you should be looking at the time frame of at least 5 years. Therefore this account should not be your piggybank when you want to go on a Europe trip or something. That said, if you happen to run out of money, you can opt to freeze the GIRO payment and continue earn dividends, rather than redeeming the shares for cash. 

EDIT (18/1/16): Partial redemption of STI ETF units is now possible for POSB.

Conclusion:

If you are investing upwards of $500, go with POEMS for the dividend reinvestment. However, if you are still uncomfortable with the numerous charges that POEMS carries, by all means go with OCBC BCIP. 

If anything between $100-$500, choose POSB because of the low commission cost. Also, if you are new to investing, POSB is good as it is more clear cut with the charges. 

As much as I would like to start this monthly investment plans right now, I'm a poor student that can only afford to invest $100 a month at most. However, I really like the automatic dividend reinvestment provided by POEMS Sharebuilder. Therefore, I'd prefer to start with the Sharebuilder plan when I draw a regular paycheck upon graduation.