Financial Freedom SG

I saw this advert by POSB in the free daily, Today. It goes to show the lack of creativity and a lack of a sense of responsibility to the consumers by banks whether they are in United States or here in Singapore.

It advertises a new fund which basically buys 2 ETFs and charges you 1% sales charge and at the same time bill you with a “low” annual management fee of 0.5%.

The best part according to the ad is that you “enjoy” 1% sales charge!

Is that all you can do to sell this fund? You ‘enjoy’ this sales charge?

As an investor, the things you can control is the price you buy into any investment and the costs you incur for holding the investment. The higher it is, the less returns you get. The lower the costs, you more you get to keep. Pay peanuts, get rich.

For comparison, Vanguard in United States charges 0.18% to manage the S&P 500 and charges ZERO sales charge or upfront fees. You can go to their site at vanguard.com to do up a hypothetical scenario and key in 1% sales charge and 0.25 management fees. In the end the POSB MyHome Fund charges 2.9 times more than Vanguard using an initial sum of $10,000.

Now that you are sold to keeping investment costs low, let’s investigate this fund further and its premise of enjoying 1% sales charge. Incidentally, it was originally 3% until some investors or sharp eyed eagles in Singapore raised up a huge ruckus by writing to the press. That’s how you enjoy 1%, after some nice people wrote to the big bad bank to complain.

The two ETFs funds that they track are the DBS Singapore STI ETF (why am I not surprised here?- in case you aren’t Singaporean and don’t understand this, DBS bought over POSB so it is basically their parent company) and ABF Singapore Bond Index Fund.

Is it really a good deal?

Let’s take a further look to the underlying costs of buying these two funds directly.

ABF Singapore Bond Fund is managed by, drum roll please, DBS Asset Management. It charges an expense ration of 0.20%. Sales charge? 0.25 to 0.5% depending on broker. You can go to the SGX website for ABF Singapore Bond Index Fund to find these information.

DBS Singapore STI ETF charges a sales charge of 0.25 to 0.5% like the bond fund above managed by the same gang. Expense ration per year is 0.20% per annum.

So do yourself a favor and skip the POSB MyHome fund, go buy it direct from the ETF issuer. Don’t let POSB enjoy the 1% + 0.25% charges (which by the way it isn’t mentioned whether it is on top of the underlying funds charges- ie 0.25 for POSB + 0.2 for the ETF).

About the only thing good in the advertisement is that this time around, the footnotes are in slightly bigger and more readable font and they even bold the parts of investments being risky and past performance being no indicator of future performance etc.

Go open a brokerage account with a securities/brokering house and buy the ETFs at much lower charges and really lower expense ratio.

POEMS is all over the island and they even set up booths you can find in Bishan Junction 8 and even in Suntec. I don’t earn commission from them by the way (but I used to work there 10 years ago), but compared to the people from POSB/DBS, they are positively angelic.