SBP which stands for Share Builders Plan, is a Dollar Cost Averaging or DCA in short, plan offered by Philips Securities. The whole idea behind the SBP is that you will contribute a fixed amount of funds every month and they will use that amount of funds that you have contributed to purchase shares on your behalf. Any remaining funds not used in the purchase of the shares will be carried over to the next month. Currently, there are 19 counters which are available for purchase under this SBP and the STI ETF is included in it too along with the other blue chips.
The brochure is rather easy to understand thus I would like to point out some other issues which you should take note if you are interested in the SBP.
1. Odd lot shares
Stocks in SGX are usually traded in board lot size. The board lot size is 1000 shares i.e. 1 lot = 1000 shares except for a few exceptions. For these exceptions, there will usually be a number in the name of the counter. For example, the size of 1 lot of SBS Transit 500 is 500 shares and the size of 1 lot of SIA 200 is 200 shares. There are two markets in SGX and they are the common market and the unit share market. If you wish to buy whole number of lots i.e. 1 lot, 2 lots, 3 lots, 4 lots etc, you can buy it on the common market and that is the market which most people will go to purchase stocks. However, if you wish to buy anything other than whole number of lots such as 200 shares of 800 shares which are also known as odd lots, you will have to buy it on the unit share market. Do take note that the unit share market is a totally different market from the common market. One potential problem that can arise is the lack of liquidity. A lack of liquidity will make it harder for you to buy and sell shares since there can be a lack of buyers and sellers for the shares. Furthermore, the difference in the buy price and the sell price can be rather significant and that can result in the purchase and sale of shares at an unfavourable price.
2. Custody of shares
Take note that the shares bought under the SBP is under the custody of Philips Securities and not CDP. If you check your CDP account, the shares which you have bought will not be reflected in there. When you wish to sell your shares, you will have to inform your trading representative before you can sell your shares. Do take note that if you inform your trading representative to sell your shares, you will be subjected to a minimum brokerage charges of $40 currently. If you wish to transfer your shares to CDP, you will have to pay $10.70 to CDP and $10.70 to Philips Securities for each counter that you wish to transfer.
3. Charges
The handling fee can be quite expensive if the amount of funds that you wish to use each month to buy shares is rather small. For example, $500 is set aside every month to purchase 2 counters. The handling fee for the purchase of 2 counters is $6.42 thus the handling fee in terms of percentage will be $6.42 / $500 * 100% = 1.28% and this is rather high. The percentage will be even higher if the amount of funds being set aside every month to buy shares is smaller than $500.
There are also other charges under the SBP. Even though the charges are quite small, they are still rather significant if added together. There are some charges you can avoid such as the Hard Copy Statement charge by opting for an Electronic Statement instead and Insuffcient Funds charge by ensuring sufficient funds in the designated bank account. Some charges are unavoidable such as the Dividend charge and Cash Offer, Rights Issue & Other Corporate Action charge.
4. Buying price of the shares
It is stated in the information sheet that the shares will be purchased on the 18th of every month on a non-discriminatory and non-preferential basis. If the 18th of every month falls on a trading day, the shares will be purchased on the next available trading day. In my opinion, there is a loophole with this. How can one determine whether the shares are purchased on a non-discriminatory and non-preferential basis ? There is always a possibility that they can purchase the shares at a lower price than what is being reflected to you and thus they can profit from the difference between the prices.
Despite of all the issues that I have mentioned regarding the SBP, it is still a rather useful plan. SBP enables the investor to develop some form of discipline by investing in a fixed amount of money every month. Furthermore, it also helps an investor by eliminating the problem of timing the market. Some of the blue chips such as DBS and Keppel Corp are very expensive to purchase since buying just one lot of these counters can cost a lot thus the SBP is a rather feasible plan that enables investors to own these counters by accumulating the odd lot shares over a period of of time.
I hope this post can prove to be useful for those who are interested in the SBP. Do think about it seriously as with any investments if you wish to take part in the SBP. If I have miss out on anything, feel free to leave comments and I will try my best to get back to you.
Posts
Hi,
ReplyDeleteChanced upon your site. Want to swap links? Mine is at http://sgstockscreener.blogspot.com
I just chanced upon SBP and Googling it brought to your post. it's very informative, so thanks for that!
ReplyDeleteI am in my mid-20s, a student a freelance writer. I am *very* new to investing and I don't have a lot of money. I want to start investing for the long term; for retirement, for my kids' education, etc.
the page on the Philips Securities website claims that I can start investing with just $100 every month. that makes it very attractive to me. I assume that I can start off with $100 and then, increase the amount further down the road.
would SBP be a wise choice for me?
Hi Mordecai,
ReplyDeleteIt is indeed possible to start investing with just $100 per month with the Philips SBP but the expense in terms of percentage is rather high so this is something which you may wish to take note of as a high expense will reduce your returns. I am rather neutral towards this due to the high expense in your situation but on the other hand, this may be a good start to investing.
Regards,
Kay
Hi,
ReplyDeleteI have several questions regarding Phillip Share Builders Plan (PSBP). Hope some people can help. :)
1. Will buying from the odd lot share market result in a higher price than the board lot share market?
2. Is it possible to manually stop PSBP for certain months (or decrease the monthly investment amount to $0), without requiring to pay the monthly handling fee? E.g. Jan $1000 for 2 counters ($6.42 handling fee), Feb stop/$0 ($0 handling fee), Mar stop/$0 ($0 handling fee), April $1000 for 2 counters ($6.42 handling fee), etc.
3. What is "dividend charges"? When is it applied? Is it applied when reinvesting, or applied as long as there is dividend? Specifically, will there be charges if you choose to receive the dividend payment in cash?
4. Continuing from 3, is this how it works (automatic reinvestment option)? E.g. you receive $100 dividend for SPH counter. They charge $1.07, and so $98.93 is added to the subsequent month's investment amount for the SPH counter.
5. Is "dividend charges" applied to each counter's dividends? E.g. you have 2 counters and both have $100 dividends each on the same month, hence both will deduct $1.07 each.
Thats it for now. I believe there'll be further questions when there're answers to the current ones.
Thanks!
momo
Hi momo,
ReplyDeleteI'm not using the PSBP actually but I will try to answer some questions. You can try to ask Mike from sti-stocksinfo.blogspot.com as he is using the PSBP to purchase some counters.
1. Perhaps since the liquidity in the odd lot share market is not as high as the board lot share market is more liquid.
3. It seems to me that the dividend charges will be incurred as long as you receive a dividend and it does not matter whether you choose to receive it in cash or reinvest it. Perhaps you have to ask the brokerage regarding this.
5. I think this is the case.
Kay
Hi,
ReplyDeleteChance upon this site and must say it is very informative for new and young investors like me.
My only concern is that SBP lacks liquidity.
I can only set about less than 500 per month for investing, and was wondering if SBP from philips is more recommended or should I just open an investing account - poems, and park my money there (money will be in their money market fund, right?), and wait until I have enough to buy shares - STI ETF. Looking at long term investment for this.
Sidetrack a bit, if I want to save up for marriage and an apartment and etc in about 5 years time, what kind of investments do you recommend?
Pardon my ignorance as I am still new to this, but I really appreciate if you could point me to the right direction. Lastly, is there any investing forum which I can go to?
Thank you so much!
Hi,
ReplyDelete500 is a decent amount to start with. However, with 500 saved every month, you will need around 6 months to buy one lot of STI ETF and the time will be longer if the amount is less than 500. Besides, you will need to exercise discipline to buy. Thus I do think that the SBP is suitable for you as it is an automated dollar cost averaging plan.
As for liquidity, the liquidity is definitely not as much as compared to the broad market but I don't think it is an issue if you are going for the SBP. However, do remember that the odd lots that you are buying through SBP can be combined to form whole lots of shares.
5 years is a long enough time frame for investment although a longer time frame would be suitable. However, it is hard to tell how will the market turn out to be in 5 years time thus I suggest you only use your spare cash to invest and save the rest to put in lower risk investment for your housing and marriage plans.
There are many investing forums around but one forum which I think is rather useful would be wallstraits.com
Kay
hey, thanks for your wonderful and interesting article. i would like to ask a question.
ReplyDeletesay if i have 500/mth to spare. since in one of your comment, you said that it takes around 6 mths to buy a STI-ETF lot. because of all the issues like charges and custody of shares etc that you have mentioned in your article. would it better, hence, to save the money elsewhere for save months before investing to buy one STI-ETF lot instead of using SBP?
Thank you so much. i am really very new in investing. Happy new year!
Hi,
ReplyDeleteA happy new year to you. Since you are new to investing, I suggest that you go for the SBP instead since you are probably not sure whether you can take the volatility of equities as SBP provides a disciplined way of investing. Furthermore, now that the STI is around 3000, it will take around 6 months to buy one lot of STI ETF and this time frame is too long to carry out dollar cost averaging.
Kay
I thought one lot of STI ETF is 10,000 units, not 1,000 units.
ReplyDeleteHi,
ReplyDeleteI think it should be 1000 units.
Kay
Hi Kay,
ReplyDeletei am new, and i want to start investing, as i have just joined the workforce.
i have about 10k of savings.
how should i start?
should i get Insurance-Linked Savings plan from insurance company? like eg. prusave (10years/15/20) that type...
or should i start with ETFs or perhaps even SBP?
thanks for ur advice.
:)
ian
Hi Ian,
ReplyDeleteI suggest that you can start an SBP to purchase the STI ETF or the DBS STI ETF. I noticed that you have just joined the workforce so it would be good to squirrel a part of your salary to purchase the ETFs as a disciplined way of building up your investment steadily.
I suggest that you do not get an insurance-linked savings plans. These plans offers a poor yield due to the high commission being charged by the company. Furthermore, your funds are being locked up for a really long time. Since your funds would be locked up anyway, it would be better to purchase equities. Though equities are volatile, it tend to rise in the long run so you will do well by putting your funds in the SBP. Besides, you can always sell your ETFs if you need the funds.
Kay
Thanks Kay for the advice,
ReplyDeletei shall now proceed to poems to get an account opened.
appreciate ur direction.
Hello Kay,
ReplyDeleteI'm 20 this year and about to enter NS soon.
I didn't know much about the various RSP out there before this and have recently signed up (~ 1 month ago) for an investment-linked insurance policy with Great Eastern as a long-term saving plan for the future, (as quoted by the financial planner). I'm placing about $150 monthly premium into it. But i realised that due to the management charges, policy charges and insurance charge, the return is very, very little. The benefit illustration showed a projected 5%-9% return which is about only $4k -$13k for a 20yrs time span! Currently they would invest my money into 4 funds each with a management charge of 1.5% each! with a monthyly policy charge of $5. wouldn't the total reduction of yield be 9% excluding insurance
charge?!
I was just wondering if I should terminate this now (i might lose about $130 since I only paid 1 month premium so far) and start this up on this SBP first at $200 and increase my monthly investment later in life when I enter the workforce? I know the charge would be quite high if I invest only $200 monthly but I believe the returns for this would be much greater than my current investment-linked policy right?.
Or are there other ways for me to go about doing RSP now?
I just really exciting to do some lower-risk investing now! Thanks a lot!
Cheers,
Bernard
Hi Bernand,
ReplyDeleteI think my answer to your question are as good as yours. It is better to terminate the ILP since you have only paid a premium of a month only and go for the SBP even though the charges may eat into your investment amount rather significantly due to to monthly investment amount.
Kay