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.
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