Do you know how to keep track of the yields on bonds, deposits and the money market?
You can search the Financial database at the the MAS website. The website is well designed. It is easy and fast to navigate.
You can find out the current interest rates, and also the changes during the past months.
Saturday, June 30, 2007
Rating of CPF approved funds
COMMENT POSTED IN MY BLOG
Mr Tan, someone like yourself needs to tell the guys at CPF exactly that a fund is safer than buying a stock.
The guys at CPF are wasting money getting the fund rated by Mercer. This indirectly means that consumers wil end up paying for something that is actually better for the average conservative investor.
It is bizzare that CPF allows someone to buy up to their stock limit in one stock while "worry" about someone buying into a fund.
The CPF guys are either trying to protect themeselves by getting the fund mangement company to pay Mercer so that Mercer can be used as a scapegoat if something goes wrong.
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REPLY:
Not all funds are well diversified and safe. It is necessary for the fund to be rated. This is why CPF appointed Mercer to do the rating.
Mr Tan, someone like yourself needs to tell the guys at CPF exactly that a fund is safer than buying a stock.
The guys at CPF are wasting money getting the fund rated by Mercer. This indirectly means that consumers wil end up paying for something that is actually better for the average conservative investor.
It is bizzare that CPF allows someone to buy up to their stock limit in one stock while "worry" about someone buying into a fund.
The CPF guys are either trying to protect themeselves by getting the fund mangement company to pay Mercer so that Mercer can be used as a scapegoat if something goes wrong.
----------------
REPLY:
Not all funds are well diversified and safe. It is necessary for the fund to be rated. This is why CPF appointed Mercer to do the rating.
Maybank's Regal Structured Deposit
Larry Haverkamp has a new posting on his blog. It talks about the pros and cons of structured deposits. As an example, he looks at a recent one -- Maybank's "Regal Structured Deposit". It links your returns to Palm oil prices which have been booming.
Note: Read Dr Money's conclusion. He said, "if you want a better return (and still safe), you can invest in the money market fund". There is no need to invest in a complicated product.
Note: Read Dr Money's conclusion. He said, "if you want a better return (and still safe), you can invest in the money market fund". There is no need to invest in a complicated product.
Ideal structure of an investment fund
What is the ideal structure of an investment fund for long term investments? Is it an indexed fund?
REPLY:
Here is my concept. The ideal structure has the following features:
* no upfront sales charge (except for a modest transaction fee)
* low fund management fee
* low expense ratio
* preferably an indexed fund, but with a certain margin to deviate from the index
It should be cheaper to invest in a fund, compared to buying a stock on the exchange.
The fund management company can cover its expenses and make a modest profit from the management fee. If the fee is high, the investor has the right to withdraw from the fund and invest elsewhere. This ensures that the fund will always be operated efficiently, for the benefit of its investors.
REPLY:
Here is my concept. The ideal structure has the following features:
* no upfront sales charge (except for a modest transaction fee)
* low fund management fee
* low expense ratio
* preferably an indexed fund, but with a certain margin to deviate from the index
It should be cheaper to invest in a fund, compared to buying a stock on the exchange.
The fund management company can cover its expenses and make a modest profit from the management fee. If the fee is high, the investor has the right to withdraw from the fund and invest elsewhere. This ensures that the fund will always be operated efficiently, for the benefit of its investors.
Fair treatment of policyholders
Hi Mr Tan,
I read your blog about the new regulation on the par fund. How can the policyholder ensure that they are fairly treated? Is it fair for the fund to reduce the bonus in bad times, and take a long time to restore the bonus? Is this fair?
To your credit, NTUC was quite fast to restore its bonus rates when you were there as CEO. Will they continue to treat the policyholders fairly?
--------------------------------
REPLY:
NTUC Income is a cooperative society. When I was the CEO, I ensured the following:
* the fund is invested to earn an attractive return, at an acceptable risk level
* the expenses are kept at a low level
* 98% of the surplus is kept for the policyholder (shareholders take only 2%)
This is why NTUC Income was able to declare better bonus rates compared to other insurance companies. The return is much higher.
Many insurance companies spend too much money on the following:
* paying high commission and sales contests to advisers and agency managers
* advertising their products aggressively
* paying high salaries and other expenses
These expenses come out of the par fund, and will ultimately reduce the return to the policyholders. This is not fair to the policyholders. However, the policyholders do not have much choice, as they are stuck with their contract for many years.
I hope that the new regulations on the par fund will help to reduce this problem. (But, it may take a long time for the results to show).
I read your blog about the new regulation on the par fund. How can the policyholder ensure that they are fairly treated? Is it fair for the fund to reduce the bonus in bad times, and take a long time to restore the bonus? Is this fair?
To your credit, NTUC was quite fast to restore its bonus rates when you were there as CEO. Will they continue to treat the policyholders fairly?
--------------------------------
REPLY:
NTUC Income is a cooperative society. When I was the CEO, I ensured the following:
* the fund is invested to earn an attractive return, at an acceptable risk level
* the expenses are kept at a low level
* 98% of the surplus is kept for the policyholder (shareholders take only 2%)
This is why NTUC Income was able to declare better bonus rates compared to other insurance companies. The return is much higher.
Many insurance companies spend too much money on the following:
* paying high commission and sales contests to advisers and agency managers
* advertising their products aggressively
* paying high salaries and other expenses
These expenses come out of the par fund, and will ultimately reduce the return to the policyholders. This is not fair to the policyholders. However, the policyholders do not have much choice, as they are stuck with their contract for many years.
I hope that the new regulations on the par fund will help to reduce this problem. (But, it may take a long time for the results to show).
Inflated Earnings
In good economic times (as like now), corporate earnings are inflated by the increase in asset prices.
As companies report higher earnings, their share price goes up and the price earning multiples goes up as well. More people buy into the shares.
When the bubble bursts, asset prices drop. Corporate earnings drop as well. In bad times, corporate earnings can drop by more than 50%. You can expect the share prices and price earning multiples to collapse.
Be careful about investing in properties and shares in times of inflated asset prices. It can be risky. Some people consider the current markets to be "frothy".
As companies report higher earnings, their share price goes up and the price earning multiples goes up as well. More people buy into the shares.
When the bubble bursts, asset prices drop. Corporate earnings drop as well. In bad times, corporate earnings can drop by more than 50%. You can expect the share prices and price earning multiples to collapse.
Be careful about investing in properties and shares in times of inflated asset prices. It can be risky. Some people consider the current markets to be "frothy".
HSBC Multi-currency account
Dear Mr Tan,
I am a retiree. I would like to seek your advice regarding HSBS's Multi Currency Savings Account which the bank has been quite active in its promotion.
This single online account gives you easy access to 10 major currencies. You can transfer funds from one currency to another, as well as enjoy attractive interest rates on all 10 currencies offered.
It appears that the account offers attractive interest rates ie more than the interest rates that local banks are offering. In your opinion, do you think it is good to invest?
------------------------
REPLY:
I think that it should be all right. As you are not locked into the investments (except for the short period of any fixed deposit), you have the freedom to move your money among the various currency according to the interest rate that they pay you.
You do need to be careful about investing in foreign currency as it may fluctuate in value compared to Singapore dollars.
Someone suggest that you should also compare the interest rate offered on this multi-currency account, compared to the similar instruments in the market. You should also consider the charges for converning the money. I agree.
Generally, it is good to have the convenience of managing it in one account. Actually, I wanted to open an account myself, but I have not got down to doing it.
I am a retiree. I would like to seek your advice regarding HSBS's Multi Currency Savings Account which the bank has been quite active in its promotion.
This single online account gives you easy access to 10 major currencies. You can transfer funds from one currency to another, as well as enjoy attractive interest rates on all 10 currencies offered.
It appears that the account offers attractive interest rates ie more than the interest rates that local banks are offering. In your opinion, do you think it is good to invest?
------------------------
REPLY:
I think that it should be all right. As you are not locked into the investments (except for the short period of any fixed deposit), you have the freedom to move your money among the various currency according to the interest rate that they pay you.
You do need to be careful about investing in foreign currency as it may fluctuate in value compared to Singapore dollars.
Someone suggest that you should also compare the interest rate offered on this multi-currency account, compared to the similar instruments in the market. You should also consider the charges for converning the money. I agree.
Generally, it is good to have the convenience of managing it in one account. Actually, I wanted to open an account myself, but I have not got down to doing it.
Investments of the Money Market Fund
The money market fund is invested in short term bonds and treasury bills. Here are the current yields from these investments:
* treasury bill: 2.22% (3 months) 2.25% (1 year)
* government bonds 2.58% (5 year)
Daily interbank rates: fluctuate between 2.25 to 3%
Depending on the mix of the instruments, the return of the fund should move within the above range. The fund manager deducts 0.25% to cover its expenses.
Alternative: If you do not wish to invest in the money market fund, you can buy the treasury bills or government bonds directly. You have to pay some transaction fee to the stockbroker or the bank.
* treasury bill: 2.22% (3 months) 2.25% (1 year)
* government bonds 2.58% (5 year)
Daily interbank rates: fluctuate between 2.25 to 3%
Depending on the mix of the instruments, the return of the fund should move within the above range. The fund manager deducts 0.25% to cover its expenses.
Alternative: If you do not wish to invest in the money market fund, you can buy the treasury bills or government bonds directly. You have to pay some transaction fee to the stockbroker or the bank.
Better governance and disclosure for par policies
Dear Mr Tan,
What are your views about the proposed measures to ensure better governance and disclosure for par policies? Will it help to ensure that the consumers will get a higher bonuses and a better return on their par policies?
----------------------
REPLY:
This is just a first step. To ensure its success, a lot of work has to be done over the next few years, to improve the system.
There are two important aspects of the new measures:
a) governance; internal rules that guide the management of the par fund (ie the fund holding the assets of the participating policyholders)
b) disclosure; to disclose the impact on changes in the bonus rates to the participating policyholders
In the ideal situation, the par fund should be managed in the interest of the par policyholders, as follows:
* the fund should be invested to earn a good return over the long term, at an acceptable level of risk
* the expenses should be minimised (so that most of the return will accrue to the policyholders)
* there should be a "fair method" of distributing the surplus between the policyholders and the shareholders
The management has to observe high integrity in managing the par fund and to treat the policyholders "fairly".
In the past, many life insurance companies are operated as "mutual companies"(ie without shareholders). It was easier to ensure that the fund is runned in the interest of the policyholders.
Nowaways, most life insurance companies are operated as stock companies (with shareholders). The companies have to face the challenge of ensuring "fair treatment" of the policyholders, while trying to give the best return to their shareholders.
The proposed new measures try to solve these challenges. It is not easy. But it is worthwhile to make a start.
What are your views about the proposed measures to ensure better governance and disclosure for par policies? Will it help to ensure that the consumers will get a higher bonuses and a better return on their par policies?
----------------------
REPLY:
This is just a first step. To ensure its success, a lot of work has to be done over the next few years, to improve the system.
There are two important aspects of the new measures:
a) governance; internal rules that guide the management of the par fund (ie the fund holding the assets of the participating policyholders)
b) disclosure; to disclose the impact on changes in the bonus rates to the participating policyholders
In the ideal situation, the par fund should be managed in the interest of the par policyholders, as follows:
* the fund should be invested to earn a good return over the long term, at an acceptable level of risk
* the expenses should be minimised (so that most of the return will accrue to the policyholders)
* there should be a "fair method" of distributing the surplus between the policyholders and the shareholders
The management has to observe high integrity in managing the par fund and to treat the policyholders "fairly".
In the past, many life insurance companies are operated as "mutual companies"(ie without shareholders). It was easier to ensure that the fund is runned in the interest of the policyholders.
Nowaways, most life insurance companies are operated as stock companies (with shareholders). The companies have to face the challenge of ensuring "fair treatment" of the policyholders, while trying to give the best return to their shareholders.
The proposed new measures try to solve these challenges. It is not easy. But it is worthwhile to make a start.
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