Sunday, November 14

DBS preference shares

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DBS is offering $500 million of preference shares to retail investors. The details are as follow.




Dividend rate : 4.7 % per annum

Dividend payable rate : 22 May and 22 November of every year

Redemption date: May be redeemed by DBS 10 years after the issue

Type: Non-cumulative, non-convertible and non-voting

You may want to take a look at a previous post that I written on preference shares here.

The timeline of events for this tranche of preference shares are as follow.

Lodgment of Offer Information Statement : November 10, 2010

Opening date and time for the Offer : November 10, 2010 at 2.00 p.m.

Opening date and time for the Public Offer : November 11, 2010 at 9.00 a.m.

Last date and time for applications for the Preference Shares under the Public Offer : November 18, 2010 at 12.00 noon

Closing date and time for the Offer : November 18, 2010 at 12.00 noon

Balloting of applications under the Public Offer, if necessary. Commence returning or refunding of application moneys to unsuccessful or partially successful applicants under the Public Offer: November 19, 2010

Issue Date of the Preference Shares : November 22, 2010

Date of commencement of trading of the Preference Shares on the Main Board of the SGX-ST: November 23, 2010

You can apply for the preference shares thorough the ATMs of the 3 local banks or by using the internet banking facility of DBS. The Offer Information Statement is available here.

Friday, November 5

SGX ADRs

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SGX has opened up the opportunity to invest in companies in China such as internet giant Baidu and oil and gas enterprise such as China PetroChem through ADRs. ADRs, which stands for American Depository Deposits is a way of investing in selected companies which are not listed on SGX. But what are ADRs exactly and how does it work ?

ADRs has been around since 1927 and it was introduced to the US markets at that time. It was created as a investment vehicle to make it easier for investor to buy shares of a foreign listed company. The conventional way of buying shares of a foreign listed company is that the investor will have to open an brokerage account that has access to the stock exchange which the company is listed on and buy the shares of the company through it. However, there are many problems associated with this way of buying shares and such as the difference in the currencies between the investor's own currency and the currency in which the company is listed in, high expenses associated such as brokerage and handling fees along with custodian fees and financial regulations associated with foreign ownership of shares of the listed company in that country. As such, ADRs can overcome the problems as mentioned above.

The process of creating ADRs can be roughly explained as follows. Banks will buy a bulk purchase of the shares of the foreign listed companies through their counterparts in the country which the country is listed in. Subsequently, this bulk purchase of shares will be divided into smaller bundles and this will be released for sale on the US stock exchanges to investors. Thus the purchase of ADRs represents a claim on the associated portion of the bulk purchase of the shares of the foreign listed companies by the bank.

There are three types of ADRs and as taken from investopedia.com, the three type of ADRs are as follows.

Level 1 - This is the most basic type of ADR where foreign companies either don't qualify or don't wish to have their ADR listed on an exchange. Level 1 ADRs are found on the over-the-counter market and are an easy and inexpensive way to gauge interest for its securities in North America. Level 1 ADRs also have the loosest requirements from the Securities and Exchange Commission (SEC).

Level 2 - This type of ADR is listed on an exchange or quoted on Nasdaq. Level 2 ADRs have slightly more requirements from the SEC, but they also get higher visibility trading volume.

Level 3 - The most prestigious of the three, this is when an issuer floats a public offering of ADRs on a U.S. exchange. Level 3 ADRs are able to raise capital and gain substantial visibility in the U.S. financial markets.

The ADRs listed on SGX belongs to either level 2 or level 3.

The ADRs are also divided into two categories and they are single-listed ADRs and dual listed ADRs. Single-listed ADRs are listed only have ADRs listed in the US and the companies of these ADRs do not have any shares listed on any stock exchanges. In comparison, the companies of these dual-listed ADRs have shares listed on a stock exchange and also have ADRs listed in the US. As such, the risk implications for these ADRs can be different and it is further explained in this post.

So what are the risks of investing in these ADRs ? Besides the usual risk of fluctuating prices and currency difference which are also common if you invest in equities listed overseas, the following are risk factors which are unique to ADRs.

Termination of ADRs

As stated on the SGX website, for single-listed ADRs, the ADRs holders will get back the equivalent of the shares as proportional to the amount of ADRs that they owned. However, the shares of the company for the single-listed ADRs are not publicly traded on any stock exchange, it will be difficult to sell these shares for cash although CDP will try to sell them. For dual-listed ADRs, this is less of a problem since the shares of the company are publicly traded on an overseas stock exchange so it will still be relatively easier to sell it.

Counterparty risks

ADRs holders do not actually hold the shares of the underlying company and these shares are held with a custodian or with the depository bank. In the event that that the custodian or the depository bank goes into financial difficulties, there is a risk that ADRs holders may not be able to retrieve back the shares though these shares are not supposed to be part of the assets of the custodian or the depository bank.

Trading Halt

In the event where trading is halted either in the US or locally on SGX, ADR investors may suffer losses due to the inability to trade or due to changes in the market from time delay.

There are also other things that you should take note. Firstly, ADRs holders have no voting rights since essentially they are holding ADRs and not the shares of the underlying company. Secondly, ADRs holders will not be able to receive any non-cash entitlement such as rights issue or bonus shares although CDP or the depository banks will try to sell these non-cash entitlement and distribute the cash proceeds to the ADR holders. Thirdly, transaction charges and tax if any, will be deducted from the dividends before it is distributed to the ADRs holders.

Tuesday, September 21

CPF to extend 4% interest in SMRA accounts

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CPF to extend 4% interest in SMRA accounts until 31 Dec 2011
Taken from Channelnewsasia on the 20th September 2010

SINGAPORE : The government has decided to further extend the 4 per cent floor or minimum rate for interest on CPF savings for the Special, Medisave and Retirement Accounts (SMRA) for another year until 31 December 2011 .

This is the second time that it has been extended.

Explaining the move in a statement, Manpower Minister Gan Kim Yong, said that despite Singapore's strong economic recovery, interest rates have remained low this year.

He added that the sharp drop in interest rates at the expiry of the 4 per cent floor rate may impact CPF members who may not have benefited fully from the economic recovery yet.

Since January 2008, SMRA savings have been invested in 10-year Government Securities plus 1%.

This is a market-based rate for instruments of comparable risk and duration, and will ensure that members receive fair and reasonable interest rates.

However, to help members cope with the transition, the government had committed to providing a 4 per cent floor rate for SMRA interest for two years up to December 2009.

This was extended to December 2010, in light of the global economic conditions and exceptionally low interest rate environment a year ago.

Beginning 2012, the interest rates will be subject to a minimum rate of 2.5 per cent per annum. - CNA /

Friday, September 17

Sibor drops to record 0.51%

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Sibor drops to record 0.51%
By Gabriel Chen
Taken from The Straits Times, 16 Sep, 2010
A key Singapore interest rate that determines some mortgage rates has sunk to a new record low, offering the prospect of even cheaper home loans.

The rate at which banks here lend to one another – the three-month Singapore Interbank Offered Rate, or Sibor – is now 0.51 per cent.

It has been hovering around the mid-0.5 per cent levels for the past few months.

In September 2008, it spiked to 2.22 per cent, as banks were afraid to lend to one another for fear of not getting repaid during the global credit crunch.

Sibor, which also affects rates for consumer loans and deposit rates, has been sliding of late.

This has been in line with the trend of interest rates set by the United States Federal Reserve, which are at historic lows. The Fed is continuing its strategy of trying to kick-start the anaemic US economy with cheap credit.

The record Sibor low also comes as the Singapore dollar has been allowed to strengthen since April.

Asia, including Singapore, is seeing major capital inflows, and this puts more liquidity into the system than would otherwise have been the case. The flushed liquidity conditions then puts downward pressure on rates.

A number of banks here offer mortgages with interest rates that are pegged to the Sibor, so there are cheaper home loans in store for homebuyers.

Still, some banks have widened the spreads that they charge above the Sibor.

This reduces the impact that the falling Sibor will have on Sibor-linked packages.

‘Still, by and large, people will be paying less for Sibor-pegged loans,’ noted Mr Nicholas Tan, OCBC Bank’s head of global wealth management.

In the low interest rate environment, some banks have introduced new housing loan products that are undercutting the rates offered by their competitors.

Maybank Singapore, for example, last month launched a new range of home loan products with interest rates that start at below 1 per cent, which is one of the lowest in town.

This intensifying fight for market share based on pricing is causing some bankers here to be concerned.

‘We are afraid of another price war breaking out,’ said a senior banker.

‘With Singapore cooling its real estate market and banks fighting for fewer real estate deals, we are looking at competition being more price intensive.’

But Ms Vibha Coburn, Citibank Singapore’s business director for secured finance, said that even if a price war breaks out, banks are not obliged to take part.

‘I don’t see the necessity of being in a price war,’ she said.

Ms Coburn said banks will have promotions from time to time, but when rates are so low, homebuyers will consider other factors, such as the turnaround time for a loan application.

‘Assuming all the customer’s documents are in place, we can give him the letter of offer in an hour,’ she said.

The low interest rates will not be a ‘pivotal factor’ to attract homebuyers back to the market, said Mr Nicholas Mak, executive director of research and consultancy at SLP International.

He said current home prices and the expected future pricing of properties are more important factors.

Some buyers are expecting prices to drop further and are holding off on making purchases, after the Government recently implemented further measures to cool speculation.

But while consumers benefit from the lower Sibor, it will mean continued lean times for those with bank deposits.

The soft Sibor is also restricting how much Singapore banks, which are net lenders on the interbank market, can charge on new loans.

This hurts their net interest margins, which measure how profitable their lending activities are.

Standard Chartered economist Alvin Liew has been revising his three-month Sibor forecast downwards, projecting rates to be at 0.5 per cent by the end of next year, from 1.5 per cent in his previous forecast.

‘The risk is that there might be more downside revision,’ he said.

Thursday, September 16

Looking deeper into the benefit illustration

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(Taken from moneysense.gov.sg)

Moneysense has a excellent explanation of the benefit illustration but I thought it would be good to explain on how are the numbers are derived.

This benefit illustration is an example of a 15 years regular premium participating endowment policy. As you may know, the premiums after accounting for the expenses will go into a participating fund or in short, a par fund in which the insurer will manage this fund to in order to grow it. This participating fund is also used for payouts to those who make claims on their policies.

For this benefit illustration, the investment return is assumed to be at 5.25%. The surrender value is the amount which you will get back if you terminate the policy. And this surrender value is made up of 2 components, the guaranteed and the non-guaranteed portion. Once again, the non-guaranteed portion is subjected to the investment performance of the fund and this is not guaranteed while the guaranteed portion is the portion which the insurer is obligated to give you back.

End of 1st year

If the entire premium paid is invested,
$3814 * 105.25% = $4014

Since the surrender value for the end of 1st year is zero, you will lose $4014 if you surrender the policy. This figure corresponds with the figure given under the effect of deductions.

End of 2nd year

Premium paid for 1st year is invested for another year,
$4014 * 105.25% = $4225
Premium paid for 2nd year is invested.
$3814 * 105.25% = $4014
Total return for 2nd year,
$4225 + $4014 = $8239

Since the surrender value for the end of 2nd year is zero, you will lose $8239 if you surrender the policy. This figure corresponds with the figure given under the effect of deductions.

End of 3rd year

Premium paid for 1st year is invested for another year,
$4225 * 105.25% = $4447
Premium paid for 2nd year is invested for another year,
$4014 * 105.25% = $4225
Premium paid for 3rd year is invested,
$3814 * 105.25% = $4014
Total return for 3rd year,
$4447 + $4225 + $4014 = $12686

Since the surrender value for the end of 3rd year is $6766, you will lose $12686 - $6766 = $5920 if you surrender the policy. This figure corresponds with the figure given under the effect of deductions. Notice that the surrender value of $6766 consists of the guaranteed portion of $6494 and the non-guaranteed portion of $272.

For the remaining years, one can use a spreadsheet to work out the numbers since it is quite repetitive.

There are a couple of things you should take note when it comes to the benefit illustration. The first thing is that you should always take the projected investment return with a pinch of salt. Insurers may have a tendency to use a higher projected investment return to make the numbers look nicer. As such, it is always prudent to ask yourself if the projected investment return is realistic. That is because, such a plan represents a long term financial commitment and it may be detrimental to your financial plans if the insurer fails to meet the projected returns down the road. Perhaps, the easiest way is to look at the guaranteed amount of the surrender value since this is the amount that the insurer must give it to you if you terminate your policy. In this case, the guaranteed portion of the surrender value is always less than the total premiums paid. Neglecting the time value of money, you may have to think for yourself whether this policy is a good one.

Another thing is that the death benefit in endowment plans is likely to be not enough to cover your insurance needs. If you have a few dependents who depends on your income to survive, a death benefit of a few grands will probably be enough to last them a few years only. As such, you cannot use such plans to cover the needs of your dependents in the event that you pass away.

Tuesday, August 31

New restrictions on property market by Government

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Below is a summary of the regulations introduced by the Government over the National Day Rally and the increase of supply of flats by HDB.








  • For the purchase of a second property while still one is still servicing an existing mortgage, an upfront payment of 30% of the valuation must be placed - at least 10% in cash, the rest from CPF. Previously, it was 20% of the valuation with at least 5% in cash.
  • A minimum occupation period (MOP) for your HDB flat must passed before you can invest in private property. Previously, it was 3 years.
  • Private property owner who buys a HDB resale flat must sell the private property within six months of the purchase of the HDB resale flat.
  • Those who sell any private property within 3 years of buying it must pay a stamp duty of up to 3% of the sale price. Previously, the seller's stamp duty applied only for resale within one year of purchase.
  • HDB will offer 38,000 new flats in the next 2 years which includes BTO, DBSS and EC and the waiting time for BTO flats will be reduced by 6 months from 3 years to 2.5 years.
I do think that the restrictions are quite substantial. In my opinion, we are having a housing bubble now and bubbles can be irrational and unpredictable as it depends on how the market perceives and reacts to the news. Supply and demand has some influence over the price too but the price may take some time to adjust and correct. In the short term, the price may still hover near the high region. But as I have been blogging about how the Government is increasing the supply and lowering the demand for the past articles, the price is likely to fall over a longer period of time such as in a few years time.

Wednesday, August 25

Deposit products to interest the savers

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Deposit products to interest the savers
By Francis Chan, Companies Correspondent
The Straits Times, 25 Aug, 2010, Wednesday

BANK depositors are being warned that measly interest rates on savings are not likely to rise this year.

But they can take some comfort from innovative new deposit products at some banks that offer higher rates as a way to lure savers.

Besides offering promotional rates from time to time, more banks are rolling out special savings programmes with slightly higher returns to cater to different customer needs and demographics.

For instance, to celebrate its 75th anniversary, United Overseas Bank is offering to pay interest of 0.75 per cent a year for fresh deposits starting from $10,000.

That may still sound like a fairly modest return, but it compares favourably with basic savings accounts that typically pay as low as 0.1 per cent a year in interest.

Some of these new deposit products return as much as 1.3 per cent a year for two-year fixed deposits, while others come with a monthly savings plan or even free insurance coverage.

Interest rates for garden variety savings accounts have not risen above 1 per cent a year since August 2001, when banks were paying, on average, 1.28 per cent.

Monthly average savings rates have also been on a downward trend since 2006, falling from 0.26 per cent.

Based on latest figures compiled by the Monetary Authority of Singapore from 10 financial institutions, savings accounts earned an average of 0.16 per cent a year in January, before slipping to a dismal 0.14 per cent from February to last month.

Savers hoping for a higher yield from their hard-earned cash will have to look elsewhere as interest rates for run-of-the-mill savings accounts are unlikely to rise at least within the year, say industry experts and observers.

‘Banks here – especially the local institutions – are very well-capitalised, so they have little incentive to offer high returns when taking deposits from savers,’ said a former independent financial adviser-turned-private banker.

He added: ‘This is unless they have a sudden need to raise capital for a particularly large financing deal they are hoping to close.’

Despite the meagre interest rates from savings accounts, experts like Mr Brian Goh of iPac Financial Planning still see them as an important tool for any investor or saver, especially when coping with rising inflation.

‘When you take it out of the bank, it will be eaten up by inflation, which is going to rise by between 3 and 5 per cent,’ said Mr Goh, a senior vice-president at iPac.

‘We need to remember that capital preservation and the ability to handle loss of capital, especially if it is a permanent loss, is just as important as growing your wealth.’

A survey by The Straits Times has found that Malaysian lender CIMB Bank has one of the highest interest rates on offer in Singapore.

According to the bank’s website, its latest promotion offers a rate of 1.3 per cent a year for a 24-month fixed deposit, but customers will need to put in a minimum of $10,000 and maintain that amount over the next two years.

At Maybank, customers can enjoy a rate of 0.75 per cent if they deposit a minimum of $10,000 for one year.

And to cater to customers above 50 years of age, Maybank’s Privilege Plus Savings Account offers a rate between 0.4375 per cent and 0.5 per cent a year, with a bonus of free personal accident insurance coverage for eligible customers.

Local lender OCBC Bank pays 0.688 per cent for a nine-month time deposit or 0.788 per cent for a 14-month term.

Another offering from the bank is OCBC MSA 123, a monthly savings account that comes with terms of 13 months, 24 months or 36 months.

They offer rates of between 0.6 per cent and 1 per cent a year. Customers start earning interest by making monthly contributions of $50 to $5,000.

Head of deposit at OCBC Bank, Ms Chng Bee Leng, said such promotions can still help customers maximise their returns while staying liquid in a low interest rate environment.
For the latest auction result, the average yield of the SGS 3 months and 1 year Treasury Bill were at 0.24% and 0.42%. As such, the rates of the fixed deposits offered by the banks above are quite attractive.

Monday, August 16

Why rising property prices are not healthy for the majority

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HDB's Historical Resale Price Index (RPI) Chart

At the end of the previous month, HDB just released the latest update of the Resale Price Index (RPI) and this latest update shows that the RPI has increased by another 4.1% in the Q2 of 2010. The chart above shows the historical RPI and as you can see, the RPI is some way above the previous peak already.

I noticed that many have the misconception that rising flat prices are beneficial since it makes them richer, or at least on paper. After all, the current flat prices are way higher than the original buying price. But that is only true if you own more than one property.

Let's say you own a 5 room HDB flat and that HDB flat is the only piece of property you own and you are currently staying in it. The market price is much higher than the original price which you have bought it. Thus you can sell it and profit from the difference between the market price and the original price which you have bought it. But after selling your HDB flat, where are you going to stay in ? Assuming all things equal, it is not possible that you can get another 5 room HDB flat at a lower price. Well, you can buy another 5 room HDB flat at a cheaper location at a lower price and profit from the difference but the similarity ends here. The profit that is gained does not come from the rising market prices but from the disparity between the locations.

Well, it is possible that you can buy a 4 room HDB flat and since a 4 room HDB flat is cheaper than a 5 room HDB flat, you can profit from the difference. But it is the same as the previous example since the profit that is gained comes from the disparity between the size of the flats and not from the rising market prices.

As such, only those who own more than one property has the potential to benefit from rising market prices. This group of people are not bounded by where they are staying in. As such, they can stay in one property and use the other properties they own to sell at a higher price and not be forced to buy another one at a high price so that they can have a place to stay. Thus, they can capitalize on the market by selling their other properties at a higher price and wait for the market to fall so they can buy properties at a lower price. Unfortunately, the majority of the public do not belong to this group.

Wednesday, June 30

BP: Short-sightedness of the stock market

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I'm sure that everyone is familiar with the oil company, BP even before the recent oil spill disaster in the Gulf of Mexico, which has been making the headlines beside the World Cup. The oil spill disaster has and will cause BP to pay billions in damages. With such a consequence, it is not surprising that the share price has taken a huge tumble from its recent peak of around $60 to its current price of around $28.



From a general point of view, without doing an in-depth analysis of the financials and business model of BP, I would say that the market is short-sighted with regards to the share price of this company. Why ? The main question for me will be, is the long term profitability of this BP being threatened ?

We don't have to look far back to see examples that are analogous to this. The SARS period that occurred in 2003 caused a decline in the stock market. This was because SARS represented a health threat worldwide. Companies that were affected by this includes those in hotels, tourism and aviation industries since people were very reluctant to travel and venture out due to the fear of catching SARS. On the other hand, there were companies who benefited from SARS and these companies are mainly in the healthcare and services segment. On hindsight, the market is rather short-sighted. This is because, all crises will eventually end although the time taken for the crises to end may be rather long. And if the crises only affects the companies temporarily but the long term profitability of these companies are not affected, the depressed stock prices of these companies may prove to be a bargain. As the SARS crisis ended, the stock market began to bounce back. Thus, those who managed to pick up bargains, benefited from the short-sightedness of the stock market.

Now given this example of the SARS period, do you think that the stock market is being too short-sighted on the long term profitability of BP ?

(The opinion expressed by the writer does not constitute an endorsement of the purchase or sale of the stock mentioned in the article. One should do a thorough research and analysis before deciding on any investment decisions)

Monday, June 7

Credit Card Debts

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I read with interest on the article titled "Younger Singaporeans biggest debt defaulters" posted on Channel NewsAsia. This article talks about percentage of default for the age group ranging from 21-29 years old has the highest rate of defaults among the other age groups.

This is the age group where most of them have just graduated and are heading to the working force. It is at this stage they suddenly have much more disposable income to spend on as compared to before thus they may not have experience in dealing with credit cards and doing budgeting. Besides, they may not be well informed in the area of personal finance and it is not a wonder that this group may be the most susceptible to the ills of credit cards usage. Here are some opinions of mine regarding the usage of credit cards.

1. Spend only what you have
As the title suggest, it means that one should not even own a credit card. Otherwise, one can stick to using a debit card instead, which means that one only spend within their means. Well, it may not be reasonably practical to refrain from using a credit card since nowadays, credit cards come with a lot of privileges and perks which may save you money such as discounts at restaurants and shops, reward points and other promotions. In that case, that will bring me to my next point.

2. Pay off all outstanding balance in full
The killer here is the exorbitant interest rates which cause many to default on their debts once they are unable to keep up with the interest payments. Generally, the interest rate is around 2% monthly or 24% yearly on the outstanding balance and that is very hefty. As such, make it a point to always pay off the outstanding balance and do not let the banks earn any interest at all.

In the event that you are not able to keep up your credit card debts and the outstanding balance is beginning to snowball, do not use another credit card to pay off the debts of another credit card. Try to seek help immediately from your loved ones or friends since frankly speaking, loans from them usually carry no interest. In this sense, you are changing your debtors from the banks to that of your loved ones, who are more likely to help you out.

Otherwise, you can give the Credit Counseling Singapore here. I believe they can work out a practical debt payment plan with the banks and can also try to negotiate for a lower interest rate, which will be helpful in solving your credit card debts.

Saturday, May 22

Leaving without a will

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I was looking at the implications of not doing a will and what will happen to the assets of the deceased if a will was not done when the deceased was still alive. A search on the internet threw up a legal act which I thought it will be pretty useful to put it up on this post and this legal act is known at the Intestate Succession Act.

Intestacy, as taken off Wikipedia here is the condition of the estate of a person who dies owning property greater than the sum of his enforceable debts and funeral expenses without having made a valid will or other binding declaration. In short, if the deceased still has assets left after and he did not make a will, he is known as dying intestate.

As for the act, I took it off the Attorney General's Chambers here, and the act is posted as follows. Do take note that this act is not applicable to the estate of any Muslim as seen below.
Short title.
1. This Act may be cited as the Intestate Succession Act.

Application.
2. Nothing in this Act shall apply to the estate of any Muslim or shall affect any rules of the Muslim law in respect of the distribution of the estate of any such person.

Interpretation.
3. In this Act —

"child" means a legitimate child and includes any child adopted by virtue of an order of court under any written law for the time being in force in Singapore, Malaysia or Brunei Darussalam;

"intestate" includes any person who leaves a will but dies intestate as to some beneficial interest in his property;

"issue" includes children and the descendants of deceased children.

Law regulating distribution.
4. —(1) The distribution of the movable property of a person deceased shall be regulated by the law of the country in which he was domiciled at the time of his death.

(2) The distribution of the immovable property of a person deceased shall be regulated by this Act wherever he may have been domiciled at the time of his death.

Property of an intestate to be distributed.
5. If a person dies intestate after the commencement of this Act, he being at the time of his death —

(a) domiciled in Singapore and possessed beneficially of property, whether movable or immovable, or both, situated in Singapore, or

(b) domiciled outside Singapore and possessed beneficially of immovable property situated in Singapore,

that property or the proceeds thereof, after payment thereout of the expenses of due administration as prescribed by the Probate and Administration Act shall be distributed among the persons entitled to succeed beneficially thereto.
Cap. 251.

Persons held to be similarly related to deceased.
6. For the purpose of distribution —

(a) there shall be no distinction between those who are related to a person deceased through his father and those who are related to him through his mother nor between those who were actually born in his lifetime and those who at the date of his death were only conceived in the womb but who have subsequently been born alive; and

(b) those related to a person deceased by the half blood shall rank immediately after those of the whole blood related to him in the same degree.

Rules for distribution.
7. In effecting such distribution the following rules shall be observed:

Rule 1
If an intestate dies leaving a surviving spouse, no issue and no parent, the spouse shall be entitled to the whole of the estate.

Rule 2
If an intestate dies leaving a surviving spouse and issue, the spouse shall be entitled to one-half of the estate.

Rule 3
Subject to the rights of the surviving spouse, if any, the estate (both as to the undistributed portion and the reversionary interest) of an intestate who leaves issue shall be distributed by equal portions per stirpes to and amongst the children of the person dying intestate and such persons as legally represent those children, in case any of those children be then dead.

Proviso No. (1) — The persons who legally represent the children of an intestate are their descendants and not their next-of-kin.

Proviso No. (2) — Descendants of the intestate to the remotest degree stand in the place of their parent or other ancestor, and take according to their stocks the share which he or she would have taken.

Rule 4
If an intestate dies leaving a surviving spouse and no issue but a parent or parents, the spouse shall be entitled to one-half of the estate and the parent or parents to the other half of the estate.

Rule 5
If there are no descendants the parent or parents of the intestate shall take the estate, in equal portions if there be two parents, subject to the rights of the surviving spouse (if any) as provided in rule 4.

Rule 6
If there are no surviving spouse, descendants or parents, the brothers and sisters and children of deceased brothers or sisters of the intestate shall share the estate in equal portions between the brothers and sisters and the children of any deceased brother or sister shall take according to their stocks the share which he or she would have taken.

Rule 7
If there are no surviving spouse, descendants, parents, brothers and sisters or children of such brothers and sisters but grandparents of the intestate the grandparents shall take the whole of the estate in equal portions.

Rule 8
If there are no surviving spouse, descendants, parents, brothers and sisters or their children or grandparents but uncles and aunts of the intestate the uncles and aunts shall take the whole of the estate in equal portions.

Rule 9
In default of distribution under the foregoing rules the Government shall be entitled to the whole of the estate.

Special provision if the intestate leaves lawful widows.
8. If any person so dying intestate leaves surviving him more wives than one, such wives shall share among them equally the share that the wife of the intestate would have been entitled to, had the intestate left one wife only surviving him.

Children’s advancement not to be taken into account.
9. Where a distributive share of the property of a person dying intestate is claimed by a child or any descendant of a child of that person no money or other property which the intestate may during his life have given, paid or settled to or for the advancement of the child by whom or by whose descendant the claim is made shall be taken into account in estimating such distributive share.

Application to cases of partial intestacy.
10. Where any person dies leaving a will beneficially disposing of part of his property, the provisions of this Act shall have effect as respects the part of his property not so disposed of, subject to the provisions contained in the will:

Provided that the personal representative shall, subject to his rights and powers for the purposes of administration, be a trustee for the persons entitled under this Act in respect of the part of the estate not expressly disposed of unless it appears by the will that the personal representative is entitled to take that part beneficially.
If the above proves to be too dry for you to read, I found an easier summary on financialadvice.com.sg here.


Do take a closer look at the distribution path of the deceased dying intestate. In the very unfortunate event that you were to pass away and you did not do a will, is this the way which you want your estate to be distributed ? For example, if you have parents who are financially dependent on you and you have a spouse and children, your estate will only be distributed to your spouse and children but not your parents. In this case, I do not think many will be comfortable with that. As such, do think about this. In any case, it is easy and not expensive to get a will done so as to ensure that your estate are distributed in accordance with your will in the event that you passed away.

Sunday, May 16

Property crash of 1996

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I'm not sure if anyone still remembers the previous property crash of 1996 where prices of properties tumbled over 40% from the 2nd quarter of 1996 to the 4th quarter of 1998. Going by the euphoria sweeping the market and the tendency for people to forget, the bad memories of this crash are probably distant by now.

I found an excellent chart on the private residential property price index on Singapore Real Estate Info here that gives a graphical representation and the significant news and measures taken by the government from 1960 until 2010.


(Taken from singaporerealestate.info)

Back then at the peak of the market, the property news that made it to the papers were of the following;
  • Enbloc sales being carried out or being proposed at private estates
  • Record sale prices by developers
  • Buyers queuing overnight with long queue lines at launches
  • Influx of foreigners buying properties
  • Flipping of properties to get rich
The government tried to stem this bubble by introducing more land sales to increase the supply and to show that there is adequate land to meet the demand. When that fails, more drastic measures were introduced such as;
  • Housing loans limited to 80% for property purchase
  • Tax on gains from the sale of properties bought within 3 years
  • Additional stamp duty within 3 years of purchase of properties for sellers
  • Stamp duty for buyers of sales and sub-sales of uncompleted properties
  • Foreigners not allowed to take housing loans
  • Permanent residents limited to one housing loan
The property market started to head south and with the impact of the Asian Financial Crisis acting as the catalyst, the housing bubble burst and the property market crashed.

Fast forward 14 years later to the current state, the property news that are making to the papers now are generally the same as in the past though the property market now is not as hot as it was back then. Similarly, it is also seen that the government has introduced an increase in land sales to meet the demand and HDB will also be ramping up its flat supply. Measures to counter speculation have also been introduced though they are not as draconian as in the past. To me, it seems like history is going one full circle in a milder manner though. So the question is where will the market head to from now ? That is something for you to think about.

Tuesday, May 4

Dream Home Loans

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Dream Home Loans
By Gabriel Chan and Harsha Jethnani
Taken from the Sunday Times on 2th of May 2010

If you thought low mortgage rates would stay unchanged this year, think again.

Over the last month or so, some banks have upped the spreads they charge above Sibor - the rate at which banks lend to one another - making Sibor-pegged home loans more expensive.

The three-month Singapore Interbank Offered Rate, or Sibor, was at 0.54 per cent last week, below the previous all-time low of 0.56 per cent in June 2003.

At DBS Bank, a home-buyer taking a loan of 80 per cent of his property's value around March would have paid a rate of Sibor plus 0.5 percentage point for the first year and Sibor plus 0.75 percentage point for the second.

A buyer opting for this Sibor- linked DBS package now will have to pay Sibor plus 1 percentage point for the first two years.

Some fixed-rate packages have also shot up recently.

Standard Chartered Bank's one-year fixed package stood at 1.25 per cent in March, but has risen to 1.95 per cent.

Sibor, which is already low as it tracks prevailing United States rates which are at rock bottom, fell further following gains in the Singapore dollar last month.

In line with the improving global economic outlook, interest rates in some countries have moved higher - with more rate hikes expected globally in the second half of the year.

Some experts tip Sibor to rise later this year and to go even higher from next year.

Standard Chartered economist Alvin Liew predicts the three-month Sibor rate will likely rise to 3 per cent in 2012.

'Mortgage rates are hitting one of the lowest levels in recent years,' says Providend's head of financial planning, Mr Eddy Cheong. 'I think, going forward, there is a high chance that rates will move up if the economy continues to improve.'

When interest rates rise, monthly instalments on home loans that are not fixed will be driven up.

This could have severe implications for buyers who have over- extended themselves with big mortgages, believing interest rates will always stay low.

'Do your numbers properly. Buying a home should be a blessing, not burden,' says Mr Apelles Poh, a financial planner with Professional Investment Advisory Services.

While some home loan rates are now higher, there are still bargains and benefits out there for the cost-conscious home-buyer.

The Sunday Times shopped around to find out what some banks have to offer:

Fixed-rate loans

If you want loans with fixed rates locked in for a term of three or five years, try DBS Bank.

Last week, the bank introduced its five-year fixed package, an unusual tenor in the market.

Rates: Three-year package: The bank's current promotion requires a customer to also sign up for its mortgage insurance plan. Rates are fixed at 1.99 per cent for three years, and Sibor plus 1.25 per cent thereafter.
Standard rates are otherwise 2.2 per cent for three years, and Sibor plus 1.5 per cent thereafter.

Five-year package: For those taking up mortgage protection as well, rates are 2.25 per cent for five years and then Sibor plus 1.25 per cent.

Standard rates are 2.5 per cent for five years, and Sibor plus 1.5 per cent thereafter.

The managing director and head of DBS' consumer banking group, Mr Jeremy Soo, says: 'Our three-year fixed rate remains highly popular with home owners desiring more certainty in their repayment, especially with our three- and five- year fixed rates at a historical low'.

He says the current promotion includes mortgage protection, which is a 'key consideration for many home owners since mortgage is a long-term and significant commitment'.

Sibor-linked loans

If you are exploring Sibor-linked loans, HSBC will be the bank of choice. Its 'no lock-in' Sibor-pegged loyalty home loan is the only package that offers decreasing spreads over the tenor.

Rates: You pay the three-month Sibor plus an additional 0.9 per cent for the first year, three-month Sibor plus 0.8 per cent for the second year and then the three-month Sibor plus 0.7 per cent thereafter.
'The interest spread reduction feature serves to benefit customers regardless of how Sibor rates move,' says Mr Sebastian Arcuri, head of personal financial services at HSBC Singapore.

This bucks the conventional home loan package, which typically sees interest rate spreads rise over the loan tenor, he adds.

Sibor-linked loans with flexibility

Citibank provides the best solutions if you are looking for flexibility through the widest variety of Sibor- linked loans.

Unlike other banks, Citi offers loans pegged to the one-month Sibor. Other loans are pegged to the three-, six- and 12-month Sibor. Lock-in period varies from zero to two years, and spreads are determined based on the size of the loan and customer relationship.

Citi offers the lowest rate on one-year fixed packages at 1.5 per cent. For its two-year fixed package, it charges 1.88 per cent for the first two years.

Rates: For the first year, rates are Sibor plus 0.7 per cent to 1 per cent. For year two, rates are Sibor plus 0.9 per cent to 1 per cent, and thereafter Sibor plus 1 per cent to 1.25 per cent.
'Customers have the flexibility to switch from one tenor to another upon tenor maturity date,' says the business director for secured finance at Citibank Singapore, Ms Vibha Coburn.

As an example, clients can make use of the low one-month Sibor and subsequently, when the month is over, perhaps pick a 12-month Sibor if they feel that interest rates are likely to rise.

SOR-linked loans

For loans tied to the Swap Offer Rate, or SOR, OCBC and United Overseas Bank (UOB) are good picks.

UOB offers a package tied to the one-month SOR, now at 0.35 per cent, that allows customers to pay a fixed monthly instalment for a one-year period.

Rates: For the first three years, rates are one-month SOR plus 1.25 per cent, and thereafter the one- month SOR plus 1.5 per cent.
In the first year, if interest rates increase, 'customers can be assured that their monthly cash flow will not be disrupted. Conversely, if the rates decline, customers can pay off more of the principal amount', says a UOB spokesman.

The one-year constant monthly instalment feature can be re-continued for subsequent years as the fixed monthly instalments will be re-computed based on the remaining tenor and interest.

SOR-linked with lowest rates

OCBC offers the lowest rates on loans pegged to the three-month SOR, which is hovering at around 0.39 per cent, with a two-year lock-in.

Rates: SOR plus 0.75 per cent for the first year, SOR plus 1 per cent for the second year, SOR plus 1.25 per cent for the third year and SOR plus 1.5 per cent thereafter.
Ms Phang Lah Hwa, OCBC's head of consumer secured lending, advises buyers to guard against being swayed by just their sentiments.

Properly assessing your financial ability before making a commitment is important, she says.

'Consider longer-term issues, like affordability in the event that interest rates rise or instalment amounts increase,' adds Ms Phang.

Loans with variable rates

As for loans with variable rates, Maybank emerges the top of the lot, with the most affordable rates, with a two-year lock-in.

Rates: The loans are tied to the bank's board rate, currently at 3.75 per cent.
Rates on the loans are discounted from this 3.75 per cent, starting at 1.18 per cent for the first year. Customers will pay 1.68 per cent in the second year, and then 2.28 per cent in the third year, and 3.25 per cent thereafter.

To mark its 50th anniversary, Maybank is offering a cash gift of $5,000 to customers who pick up the variable-rate loan, says consumer banking head Helen Neo.

Rates for loans inclusive of the gift are slightly different, at 1.68 per cent for the first year, 1.88 per cent for the second year, 2.38 per cent for the third, and 3.25 per cent thereafter.

The two packages offer 'customers discounts off the bank's board rate throughout the period of their loan tenor', Ms Neo adds.

gabrielc@sph.com.sg

harshamj@sph.com.sg

Saturday, May 1

Be prepared for higher mortgage interest rates

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The graph belows shows the historical 3 months SIBOR chart starting from Jan 1988 to the SIBOR now. The data that were used from to obtain this chart was taken from MAS's website here.



The current SIBOR, at the time of publishing of this post, stands at 0.646% and this is one of the lowest SIBOR which we have seen so far. In fact, the SIBOR has been hovering at a very low rate at around 0.69% as compared to the previous two decades, which can be seen from the chart.

Typically, interest rates will begin to rise when the economy is recovering as this is the case we we should be seeing now. Admittedly, low interest rates for the past year or so has enticed buyers to make purchases of properties since mortgage payments will be very affordable given the low interest rates. As such, buyers can be lulled into the belief or assume that mortgage payments will continue to remain affordable for a long time and this can be a rather expensive assumption.

As an example, we can consider a loan quantum of $500,000 with a loan period of 30 years. With an interest rate of 3%, the monthly mortgage payment will be $2,168. If the interest rate is increased by 2.5% to 5.5%, the mortgage payment will increase to $2,839 and that will be an increase of $671. So the question is that will you have any difficulty in servicing the monthly mortgage payment if the interest rate increases ? Otherwise, it will be prudent not to over leverage and set aside an amount of funds to cover implications that may arise from an increased interest rate.

Sunday, April 25

Factors crucial to financial freedom

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There are three factors which I consider as crucial to get started on the journey towards financial freedom. To get started, I would define financial freedom to be the ability to sustain your desired lifestyle with little or no further work. That means that without having to work, there will still be income being generated from other avenues that can meet or exceed your expenses.

What are these factors which I consider as crucial ? These three factors are Earnings, Savings and Investment. These three factors are closely linked to each other and the combined strength of these factors is greater than the individual sum of these factors alone. If you are able to do well in just two of these factors, you should be rather financially stable after all. But if you can do well in these three factors, you should be able to achieve financial freedom after a period of time. The three factors are being elaborated below.

Earnings

The ability to generate earnings can give rise to a higher proportion of savings which can give one much more capital to channeled it into investment, which can then give rise to a higher absolute return. Consider the case of two persons who are earning $1,000 and $5,000 monthly. Let's say that both are able to save 20% of their salaries. At the end of each year, both of them will be able to accumulate $2,400 and $12,000 respectively. If both of them are able to generate the same investment return on their savings, who will take a shorter time to hit $100,000 ? This answer is pretty obvious for the one who earns less must either take a longer time or generate a higher investment return to hit his investment target.

Savings

The ability to save is equally important too though this factor is usually not deemed to be as important as earnings generally. Irregardless of your earnings, if you are not able save much, there will not be much capital left for investment. Without capital, it will be difficult to acquire assets which can generate streams of income. As such, both earnings and savings are equally important to me.

Investment

If the above two factors are satisfied, you should have a substantial amount of capital for investment. But the foremost rule of investment is to preserve your capital. As such, one should always be wary and prudent of any investment opportunities for it takes time to build up a substantial amount of capital. The capital should be deployed to investments which can offer capital gains and a steady stream of cash flows over a period of time. Some examples could be in the form of purchasing equities or properties which can give capital gains during a price appreciation of these assets. Dividends and rental income from these assets will also give a steady stream of cash flows. Such gains and cash flows can also be reinvested to acquire more of such assets which can give rise to a higher capital gains and cash flows.

However, it is not easy to satisfy all these criteria. The reality is that all of us are in different circumstances and these circumstances may not allow us to meet the criteria easily. Some of us may be stuck in industries or companies that do not pay as well or do not possess enough qualifications to command higher earnings. Others may find it hard to save due to inevitable expenses such as payment of loans or parental support or even the need to sustain one's lifestyle. To add on, investment is an another totally different game which the majority of us may not do extremely well for it takes knowledge and experience on top of the ability to rein in your emotions to be able to achieve a higher return. Doing well for any of these two factors should ensure that you should be financially stable but doing well for these three factors will get you started on the road to being financially free.

Monday, April 19

The more things change, the more things stay the same

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Has the sudden change of market taken anyone by surprise. Last Wednesday, the STI broke the elusive 3000 level by closing at a level of 3019.74, fueled by the news of an excellent quarterly GDP growth by Singapore. When I logged into Facebook on the following day, I saw a few comments that goes like this.

"NOL huat arh !"

"XX% profit on Cosco, more to come !"

"Time to do analysis on Genting !"

A rising market that makes the most noise draws in speculators easily. Fast forward to the present, STI closed badly at a level of 2960.93. Now I wonder if those speculators and punters are sitting uncomfortably on a loss now. This episode is a stark reminder that the stock market is not an ATM machine. But as human nature goes by, greed is inherent in us and many will still continue to speculate and punt.

Saturday, April 10

Starting salaries for graduates in 2009

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The graduate employment survey for 2009, which is conducted by the Ministry of Education has been released and the official link is here. The course which has the highest starting salary in this survey is the Information Systems Management offered by SMU with a mean and median starting salary of $3,754 and $4,000 for those graduating cum laude and above. Otherwise, there are no surprises with courses from the Arts & Social Sciences garnering the lowest salaries generally followed by Science, IT & Engineering Courses with Business courses taking the upper tier though there are some exceptions depending on the university offering the courses.

There are some interesting findings too. Not all business courses are created equally. Starting salaries for NTU business course graduates seems to lagged behind the other business courses offered by other universities generally although it is a 3 years direct honours course. On the other hand, since it is a 3 years courses, graduates can gain a year of experience and earn a year of salary compared to business graduates from other universities who are taking the 4 year route. Another thing is that graduating with honours or Cum Laude and above give rise to a rather significant increase in the starting salaries.

The starting salaries for SMU graduates is also rather interesting. SMU graduates seems to be commanding a premium for their salaries as compared to graduates for other universities for equivalent courses generally. Their mean salaries are also significant higher than their median salaries which suggest that there are a few graduates at the upper tier who are really getting much higher starting salaries than the rest of their peers in the same courses. It seems like SMU is a good choice for those who are considering on which universities they should join.

Friday, March 26

The fallacy of long term investing

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It is often advocated that investing in the long term for equities is the way to go. That is because equities are volatile so in the short term, one may suffer a temporary drop in the price of their holdings. But it has been seen historically that equities has a strong tendency to trend up over the long term thus that is why it is important to invest for the long term to ride out the volatility. However, it does not mean that one should buy at anytime and hold it for a long period of time as this period of time that is required to ride out the volatility can be really long. So how long is really long ? Let me illustrate with one situation below.



Let's assume that you bought at near the beginning of the purple line as listed on the chart below. The beginning of the purple line coincides with 6th of February 1996 and at that point of time, the STI was at a level of around 2493. Unfortunately, as you can see from the chart, STI went on a decline. It will take you another 1416 days or close to 4 years before you will break even on your investment on the 2nd of January as seen by the end of the purple line.

What if you decide to hold your investment since it is suggested that you should hold your investment for a long period of time ? Another breakeven point will occur on the 2nd of October 2006 at the end of the blue line which will take 3881 days or around 10 years and 7 months. If you still decide to hold your investment, you will suffer a paper loss on your investment as signified by the green circle once again although you will enjoy some minor gains currently as the STI approaches the level of 3000. And that is after holding your investment for around 14 years.

As you can see from the scenario I painted above, a long period of time can really be long. I'm not suggesting that investing for the long term is a wrong concept. To me, it is a sound concept but that comes attached with conditions. So what are the conditions that you should take note of ?
  • Point of entry is of utmost importance. As illustrated above, buying near the peak will result in poor returns on your investments. Even if you did not manage to sell out near the peak but if you had bought near the bottom, you will still be sitting on a respectable amount of return after a long holding period.
  • Choice of investment is of utmost importance similarly. Buying a stock of a fundmentally lousy company and holding it over the long term will not yield you any decent return. The choice of investment should be an investment that has a strong tendency to rise in the long run such as index funds, ETFs that tracks major indices or a diversifed portfolio consisting of stocks of fundamentally strong companies.

Tuesday, March 16

Raising the Threshold for CPFIS-SA Investment

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Raising the Threshold for CPF Investment Scheme-Special Account Investment

From 1 July 2010, the first $40,000 of members’ Special Account balances will no longer be allowed to be used for investments. Given the higher risk-free interest rate on the Special Account, it is better to be more conservative than to subject these savings to the uncertainty of CPFIS returns.

There is no change to the requirement for members to set aside $20,000 in the Ordinary Account before they can invest their Ordinary Account monies.

(Taken from the CPF Board's official website)
That is bad news for investors who can potentially generate a higher return on their funds sitting in their CPF SA. However, that group of investors belongs to the minority. For the majority, the interest for the CPF SA is already very decent if you take into account that the return is risk free.

Sunday, March 14

Definition of Critical Illness

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Critical illness plans are insurance policies which will pay out a sum of money if the policyholder is diagnosed as having a critical illness. However, if you are having such a plan, have you ever seen the definition of the critical illnesses which must be met first before the full sum of money will be given out to you ? I managed to find the definition of the critical illnesses on the website of the Life Insurance Association of Singapore here and we can take a look at some of the definitions.
1 Major Cancers
A malignant tumour characterised by the uncontrolled growth and spread of malignant cells with invasion and destruction of normal tissue. This diagnosis must be supported by histological evidence of malignancy and confirmed by an oncologist or pathologist.
The following are excluded:
• Tumours showing the malignant changes of carcinoma-in-situ and tumours which are histologically described as pre-malignant or non-invasive, including, but not limited to: Carcinoma-in-Situ of the Breasts, Cervical Dysplasia CIN-1, CIN-2 and CIN-3;
• Hyperkeratoses, basal cell and squamous skin cancers, and melanomas of less than 1.5mm Breslow thickness, or less than Clark Level 3, unless there is evidence of metastases;
• Prostate cancers histologically described as TNM Classification T1a or T1b or Prostate cancers of another equivalent or lesser classification, T1N0M0 Papillary micro-carcinoma of the Thyroid less than 1 cm in diameter, Papillary micro-carcinoma of the Bladder, and Chronic Lymphocytic Leukaemia less than RAI Stage 3; and
• All tumours in the presence of HIV infection.
I am not legally or medically trained so my apologies if I have failed to misunderstand any of the terms clearly. It is stated above that Carcinoma in situ is excluded from the definition of the critical illness. A search on Google for this term reveals that it is cancer that involves only the place in which it began and that has not spread. Thus, if you have cancer which have not spread, do not be surprised if you cannot receive any payout from your critical illness plans.
14 Major Burns
Third degree (full thickness of the skin) burns covering at least 20% of the surface of the Life Assured’s body.
Here is another definition from the definitions of critical illnesses. Notice that the definition of major burns is defined very clearly and concisely. Thus, any major burns that does not meet the above definition may result in non-payment of the policy.

As such, you may wish to take a closer look at the critical illness riders or plan if you are buying one and ask your financial adviser for a more detailed explanation.
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Wednesday, March 3

Individual investors' SGS holdings to shift to CDP

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Individual investors' SGS holdings to shift to CDP
Taken from The Business Times on the 2nd of March, 2010

THE Singapore Exchange (SGX), DBS Bank, United Overseas Bank (UOB) and OCBC Bank yesterday announced that all Singapore Government Securities (SGS) holdings of individual investors will be migrated to the Central Depository (CDP) for safekeeping starting from next month.

The SGS migration exercise is part of the Monetary Authority of Singapore's (MAS) initiative to make the SGS market more accessible for individual investors.

Other elements of the SGS migration exercise include consolidating details of investors' SGS and securities holdings into a single CDP account; making SGS valuations and details of investors' SGS holdings available online at www.cdp.com.sg; making available day-end SGS/ T-Bill prices at www.sgx.com; and allowing investors to freely buy or sell SGS through any SGS agent bank, to improve their access to the most competitive SGS market prices.

Currently, individual investors are restricted to dealing SGS only with their agent bank.

The SGS migration exercise will be conducted from April 1 to June 30. SGX, DBS, UOB and OCBC Bank will contact investors with more details on the exercise.

During the exercise period, SGX will waive the CDP transfers fees in relation to the SGS holdings being migrated. SGX will also waive fees for the SGS holdings services for a three-year period from April 1, 2010. SGX does not currently charge fees for CDP account opening.

CDP account opening fees and the securities and/or SGS holding fees are subject to a review process that SGX conducts every three years.

Sunday, February 28

Gains from stocks may be taxable by IRAS

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All these while, I thought that capital gains from the sale of shares or financial instruments will not be taxed by IRAS. However, if you look closely at the IRAS website, it states that the gains may be taxable if the individual is trading and that depends on the frequency and volume of transactions and the interval between the purchase and sale. Well, if you are investing, you are not likely to fall under this category since the holding period of the shares will be rather long. On the other hand, those who do trading are more likely to fall under this category. Another disadvantage besides the expenses incurred for brokerage charges due to the frequency of trades.

Monday, February 22

Make full use of interest free study loan

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If you are or you have kids who will be entering university soon, you should take advantage of the interest free study loan and tuition fee loan and use the funds to invest. The returns that are generated can be used to offset the cost of a university education slightly.

Fresh undergraduates who will be entering into any of the 3 local universities which includes NUS, NTU and SMU are usually able to take a tuition fee loan of up to 90% of their course fee. Depending on the selection of course, it ranges from around $6500 for most courses such as Engineering or Science to slightly less than $19,000 for medicine. Subsequently, they may be eligible to take up a study loan that can pay for the remaining 10% of their course fee and a living allowance of $3,600. For most courses, this means that the recipient can receive up to a potential amount of at least $10,000. Throughout the entire course of study, interest will not be charged on the loan amount. As such, if you have enough funds to pay off the tuition fee, my suggestion is that you should not pay it off straightaway but keep it to generate some returns and try to get the study loan too.

Let us consider an example. An undergraduate will be entering into an Engineering course in NUS soon and he is able to secure both the tuition fee loan and study loan. The undergraduate has enough funds to pay off the tuition fee but he will be taking up the tuition fee loan and the study loan. Currently, the course fee for Engineering at NUS is $6,620. Taking into account of the study loan, he will be receiving a total of $6,620 + $3,600 = $10,220 at the start of each year for the entire course of study. Since the preservation of the tuition fee is of utmost importance, the funds that he has received will be invested in a principal guaranteed or risk-free investment such as SGS bonds, structured deposits or fixed deposits. For the sake of illustration, we assume that we are able to invest the funds yearly with a return of 1.0% per annum.

Year 1
Amount received = $10,220
Interest received at end of Year 1 = $10,220 x 1%
= $102.20
Total amount at the end of Year 1 = $10,220 + $102.20
= $10,322.20

Year 2
Amount received = $10,220
Total amount at beginning of year 2 = $10,322.20 + $10,220
= $20,542.20
Interest received at end of Year 2 = $20,542.20 x 1%
= $205.42
Total amount at the end of Year 2 = $20,542.20 + $205.42
= $20,747.62

Year 3
Amount received = $10,220
Total amount at beginning of year 3 = $20,747.62 + $10,220
= $30,967.62
Interest received at end of Year 3 = $30,967.62 x 1%
= $309.68
Total amount at the end of Year 3 = $30,967.62 + $309.68
= $31,277.30

Year 4
Amount received = $10,220
Total amount at beginning of year 4 = $31,277.30 + $10,220
= $41,497.30
Interest received at end of Year 4 = $41,497.30 x 1%
= $414.98
Total amount at the end of Year 4 = $41,497.30 + $414.98
= $41,912.28

Total amount received = $10,220 x 4
= $40,880
Return on investment = $41912.28 - $40,880
= $1,032.28
Percentage reduction in tuition fee = $1032.28 / ($6,620 x 4)
= 3.9%

From the above calculation, it can be seen that the funds can be used to offset the tuition fee by 3.9% using a investment return rate of 1.0%. I do think it is possible to get a higher interest rate of slightly above 1%. Although the amount saved is not a lot, this offset of tuition fee seems to be 'free' as all we are doing is to generate interest on the tuition fee loan and study loan during the course of study in which interest is not charged on these loans. So this is something which you may wish to consider if you or you have any children who are entering into a university soon.

Sunday, February 14

Historical STI market correction

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Fundsupermart has an excellent article here on the statistics of the past STI market corrections which I have been feeling too lazy to compile. The statistics were compiled from 1987 to 2007, spanning 4 bull markets with the exception of a partial recovery from the technology recession in 2001 being stopped by SARS and the Gulf War.

Distribution of corrections:

(Taken from fundsupermart)

Median level of corrections : -8.6%
Average level of corrections : -10.6%

Duration of corrections

For corrections of 4% from any peak,
  • Takes place once around 155 days or around twice each year
  • Average correction last 46.5 days
  • Median correction last 24 days
Going by the above statistics, the current correction in the STI market is probably over the market has corrected by around 8.5% and this correction has lasted for around 25 days. Congratulations to those who have bought in or added on to their positions. Meanwhile, it will be prudent to wait for the next correction.

Saturday, February 6

Stock market correction is an opportunity

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One month can make a lot of difference. I remembered just a month ago, the stock market was still very optimistic with analysts calling for a bullish market for 2010. On the contrary, I adopted a much more conservative and cautious view that this year will not be a repeat of the previous year of phenomenal growth as stated in my last post of 2009 here.



The highest closing level of STI so far for this year was made on the 11th of January at 2933.53 while the latest closing level made on this Friday was 2683.56. Thus STI has corrected by around 8.5% so far. Given that the economy is in the recovery phase and it is no longer in any recession, I doubt we will see any plunge of more than 30%. The level of around 3000 made last month was way too optimistic as mentioned before previously in my post since when the economy was at its peak previously, STI reached a level of 3900 only. As such, this correction will be a excellent time to add on to your current positions. I do hope that this correction will carry on further.

Sunday, January 24

2 weeks hiatus

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I will be going on a trip for the next 2 weeks so I will be not be updating my site. Meanwhile, the recent correction in the market may prove to be a fantastic time to add on to new positions so do stay focused on the stock market.

Saturday, January 16

Car insurance premium

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I saw a very useful post on the Hardwarezone forums under the Cars & Cars section on what factors will contribute to the premiums for car insurance.

How premiums for car insurance is calculated

Premium is calculated based on the following factors

1) Age Group This refers to the age of the car owner. Most company has similar age group factors.

18 to 21 - super expensive
21 to 25 - quite expensive
26 to 30 - a bit expensive
31 to 65 - safe zone

2) Driving Experience This refers to how long have you had your driving license and has nothing to do with your actual driving experience. This is measured in number of years.

0 to 1 - super super expensive
1 to 2 - super expensive
2 to 4 - quite expensive
more than 4 - safe zone (most insurance companies will charge the lowest rate for drivers with 4 or more years of driving experience, though some other insurance companies will give the lowest rate for drivers with 3 or more years of experience - eg. OAC under Great Eastern)

3) Job occupation (Indoor/Outdoor) This refers to the nature of work such as desk bounded jobs or sales jobs.

Indoor - cheaper
Outdoor - more expensive

4) NCB Discount This refers to No Claim Bonus discount or some insurance companies may term it as NCD (No claims Discount). You will get 10% NCB for every year which you do not have an accident. The maximum NCB that you can get is 50%.

For example, your car insurance premium cost $2000 (before NCB) and you have 40% NCB, your premium would be $1284 {[2000 - (2000 * 40)] * 1.07} with GST. Hence the higher the NCB, the lower your premiums will be.

5) NCB Protector This is applicable to people with 50% NCB. In the event of 1st accident in that policy year, your NCB will remain at 50%. After which, the 2nd accident will cause your NCB to be reduced to 20% (50% - 30%) . If you are very unlucky and meet with a 3rd accident in a year, your NCB will be reduced to 0% (20% - 30%, you cant get -10% so it will be 0%)

It is important to note that NCB protector is only effective if you renew your car insurance with the same insurance company. If your car insurance is with company A and your NCB is 50%, after the 1st accident which is due to your fault, you will still get 50% NCD as you got the NCB protector upon the renewal. However, instead of renewing my insurance with company A, you go with company B, you will only be entitled to 20% NCB.

6) Safe Driver Discount This is an additional 5% discount if you do not have any traffic offense or demerit points for the past 2 years. You only get this additional 5% when you have a minimum of 30% NCB.

For example, your car insurance cost $2000 (before NCB) and you have 30% NCB and safe driver discount, your premium would be $1423 {[2000 - (2000 * 30%)] * 0.95 * 1.07} with GST.

7) Engine Capacity (cc) This refers to the capacity of your car engine in cc. The lower the cc, the lower the premium.

8) Year of Manufacture This generally means the year which your car is made/registered. Generally, the older the car, the cheaper the premium

9) Body Type This refers to the type of vehicles such as saloon, MPV, SUV etc. Some insurance companies will charge a higher premium for a certain type of vehicle.

10) Engine Type This usually refers to normal or turbo car engine, It's important to know that most car insurance company will impose a higher car insurance premium on turbo cars. Some insurance companies will even reject cars with turbo engines.

11) Gender This is dependent on different insurance companies. Some insurance companies will charge a lower premium for male drivers while others will charge a lower premium for female drivers. For some other companies, the rate remains the same.

11) OPC Car OPC also know as off peak car (red plate). Some companies give a 5% discount for OPC (eg. NTUC) while other companies does not.

There are a few implications about this factors. Firstly, one should always try to secure a driving licence as early as possible since the number of years that you had your licence irregardless of your actual driving experience plays a part in the premiums. Secondly, it is advisable to get a car after 30 since any age below the age of 30 will result in an increased premium. Thirdly, getting a car with a lower engine capacity will not only lower your insurance premiums, but it will also result in a lower road tax, resulting in savings for both areas.

Tuesday, January 12

Always pay yourself first

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Always pay yourself first. This is something which we can do as a start to manage our finance prudently. I do think that the majority of us tend to spend their salary first once they receive it. Only at the end of the month, the remaining amount will then be transferred to a savings account. If you actually think of it, we are actually using the money to pay others first before we pay ourselves. In some cases, the savings account is not really one since funds are frequently transferred from it to cover for the shortfall that may occur in any month or to spend on big ticket items. Thus in the long term, the savings is likely to remain at a stagnant level.

As such, it can be hard to pay yourself first. However, there are a few steps which you can do. Firstly, you should make your savings account as inaccessible as possible. Preferably, there should be no ATM card linked to this account so there will be no chance of you withdrawing cash from the ATM from this account. Secondly, establish only one link to your savings account to other accounts and that account should be the account which your salary will be credited to. Thirdly, reduce the transfer limit of this savings account to the minimum so that you will not be allowed to transfer a large sum of money from this savings account. Lastly, you should set up an automated instruction in your internet banking to transfer a set amount of money from the account which your salary will be credited to, on the payday itself. This ensures that you get to save a sum of money first before you get a chance to spend your salary. Hopefully, this ensures that your savings will grow to a substantial amount.
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