78% of CPF investors made returns higher than OA interest rate in FY2016

78% of CPF investors made returns higher than OA interest rate in FY2016

The latest numbers are based on a new calculation method which includes unrealised profits or losses.

SINGAPORE: A total of 441,000 CPF members or about 78 per cent of those who invested through the Central Provident Fund Investment Scheme (CPFIS) made profits higher than 2.5 per cent per annum, which is the interest rate on Ordinary Account (OA) funds.

That is according to CPF's latest report measuring the performance of its investment scheme in FY2016 which was released on Wednesday (Sep 27).

The report also showed that the number of such investors who made total profits equal or less than the OA interest rate of 2.5 per cent fell from 84,000 (15 per cent) in FY2015 to 60,000 (10 per cent) in FY2016.

In addition, fewer members incurred losses - 340,000 members (58 per cent) made losses in FY2015 compared to 66,000 (12 per cent) in FY2016. 

CPFIS-OA FY2015 vs FY2016

This year’s annual report is based on a new method of calculation.

The previous method only took into account profits and losses from actual sales, while the new one includes returns yet to be encashed, or what industry experts call unrealised profits or losses. 

CPF said this method of calculating is closer to practices in the fund management sector – a point that financial planners are in agreement with.

Mr Victor Wong, Director of Wealth Management at Financial Alliance, said CPF’s new method of calculation is widely adopted by fund managers.

“It's the way fund managers look at returns ... so I guess it is in line with the market practice,” he said.

The old way of calculating also included CPF members who have an investment account but did not make any investment last year, while the new method excluded that group. The previous calculation included 909,000 members while the new method covers 583,000 members.

CPFIS-OA Old vs New method of calculation

The returns will then be measured against the OA’s prevailing interest rate. 

Financial planners Channel NewsAsia spoke to saw the change as a positive step.

Mr Vincent Tey, Advisory Director of Providend said that the new method “considers all cashflows within the measured period".

“The old way of measuring was vastly distorted and inaccurately reflects the investment climate,” he added.

Mr Wong explained why the new method is more accurate: “In the old method ... those who actually buy and maybe are sitting on a nice profit, are excluded from the calculation.”

Industry experts also say the new method of calculation helps CPFIS-OA investors and those interested to invest to be more aware of market situation.

The review to evaluate the method to measure its investment performance was undertaken following an observation made by the CPF Advisory Panel in 2016, CPF said.

More than 560,000 of CPFIS-OA members invested an average of about S$32,000 each for the last financial year.

Source: CNA/hm