You will be able to compare a regular savings plan with placing monthly orders yourself.
Marcus, Nadia's friend from polytechnic, had bought his first ETF a few months earlier, once his card was cleared and his buffer built. Now he wanted to add S$500 a month, but he knew himself. If it depended on him remembering to log in and place an order, it would happen for three months and then stop. His bank offered a regular savings plan that would do it automatically. He asked Nadia whether that was a good idea.
It might be. A regular savings plan solves a real problem, and for some people it's the better choice. But it changes what you pay, what you can buy and who holds what you own, so it's worth comparing before you sign up.
A regular savings plan, often shortened to RSP, buys a fixed dollar amount of a chosen fund or share on a set date each month. Banks offer them, and so do many brokers. You pick the investment from the plan's list, set the amount and link a bank account, and on the set day the plan takes the money and makes the purchase for you.
Because you're investing a dollar amount, not a number of board lots, the plan usually buys fractional units. Your S$500 goes in in full, whatever the price. The provider can do this because it pools many customers' purchases together and splits the result.
There's no limit price: you get whatever price the provider achieves for the pooled order that day. For a broad, busy ETF bought once a month for years, that matters less than it would on a thinly traded fund, but you should know it.
RSP fees are usually charged as a percentage of each purchase, sometimes with a minimum per transaction. Some plans also charge for selling, or for holding. Check the provider's current fee page, since these change.
Compare that with buying through your broker yourself. Here's a made-up example using Marcus's S$500 a month. Suppose the RSP charges 0.5% of each purchase. That's S$2.50 a month, or S$30 a year on S$6,000 invested.
Set that against the made-up broker from lesson 1.4, Compare two brokers on one sheet, with its S$10 minimum: S$120 a year if Marcus places his own order every month, or S$40 a year if he buys every three months the way Nadia does.
On those made-up figures, the RSP is the cheapest of the three for small monthly sums. That's common, because a percentage fee on S$500 is often smaller than a broker's minimum. The gap narrows or reverses as the monthly amount grows, since a percentage fee grows with it while a minimum doesn't. Run the numbers for your own amount and your own providers.
Many regular savings plans hold your units in custody, registered in the provider's or a nominee's name, which is how they can give you fractions of a unit. Your CDP account never sees them. You're the beneficial owner, but the provider is the registered holder, as lesson 1.1, CDP or custodian: who actually holds your shares, explained.
That brings the same trade-offs you weighed in module 1. Dividends go to the provider first. You may need to ask if you want to vote. If the provider failed, you'd have to wait for its custody records to be checked before getting your units back. And if you later want to move your holdings to CDP, you may only be able to transfer whole units, with the fractions sold.
Some providers do credit RSP purchases to your CDP account. Read the plan's terms to see which kind you're signing up for, and don't assume.
The plan's list of investments matters too. If your chosen ETF from module 5 isn't on it, an RSP means picking a different fund, and that choice should go back through your must-have list before you accept it.
Placing your own orders, monthly or quarterly, takes more effort. You have to remember, log in, check the price and place a limit order. In return you control the price you pay, you buy into your CDP account if you've chosen a CDP-linked broker, and you can buy any SGX fund, not just those on a plan's list.
The effort is also the risk. A plan you have to act on is a plan you can skip, and skipped months tend to cluster in exactly the periods when prices are low and the news is bad.
Neither is right for everyone. It comes down to cost at your monthly amount, whether you're happy with custody, whether your chosen fund is available, and how reliable you are at doing it yourself.
Marcus chose the RSP. His fund was on the list, the fee was the lowest of his options at S$500 a month, and he was honest that he'd stop placing orders by hand. He accepted custody as the price of automation.
Nadia stayed with her own quarterly orders. The RSP would save her S$10 a year compared with her S$40, but she'd chosen her broker specifically to hold Fund X in her CDP account, and the plan would hold it in custody. She set a calendar reminder for every third payday instead.
Work out the yearly cost of investing your own monthly amount through a regular savings plan you could use and through your broker, then choose one, with a sentence on why.
Compare the yearly cost of investing your monthly amount through a regular savings plan and through your broker, and choose one.
Junxiong-WFG Organisation is an authorised representative of AIA Financial Advisers Private Limited (Reg. No. 201715016G).