Return on investment funds

In spite of the sharp correction in May, the global equity, Singapore equity and the combined (growth and balanced funds) operated by NTUC Income still give a positive return for the five months of this year.

The funds also performed better than benchmark.

Fund                  Jan-Apr    May   Jan-May 
Global Equity           6.1%    -4.2%    1.6% 
Singapore Equity       12.0%    -5.6%    5.7% 
Global Bond            -1.8%     0.1%   -1.7% 
Singapore Bond         -0.4%     0.6%    0.2% 
        
Combined (Growth)       4.7%    -3.2%    1.4% 
Combined (Balanced)     3.0%    -2.3%    0.6% 
Combined (Conservative) 1.2%    -1.3%   -0.2% 
        
Benchmark       
MSCI World              4.5%    -3.6%    0.8% 
STI                    12.1%    -7.9%    3.3% 

Is it time to invest?

It is a good time to take up a regular premium investment-linked plan. By saving on the regular premium, you will enjoy the benefit of lower dollar cost averaging.

At the current low cost of the units, you will get more units for your investment. If the price drops further, you can get even more units.

The market will turn around. Your investment will benefit from the upturn.

I suggest that you choose the Global Equity fund or the Combined Growth fund.

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If you are making a large, lump sum investment, the position is still not clear. The market correction has been more severe than I had expected. The correction allows you to make your investment at 5% to 10% lower than it was one month ago.

I wish to make an additonal investment of $200,000. I will probably invest $100,000 next week, and another $100,000 a few weeks later.

My choice is the Global Equity Fund.

Was this stent necessary?

My insurance adviser received an e-mail from a patient.

She went to a private surgeon, who did a stent for her. He wanted to do a second stent, but she said she has could not afford it. She had just switched to a private insurer, which does not cover an early claim.

When she went to a restructured hospital, she was told that the stent was not necessary, as the extent of her blockage was not severe, and was quite common.

There are patients who have received different advice from the the medical profession. It is useful to have a second opinion before embarking on a major or expensive surgery.

Banks earn bumper profits

The local banks report bumper profits this year. Two banks earns more than $1 billion each, and much higher than in previous years. Even a foreign bank report that they earn more than $500 million in Singapore.

They make higher profits from the following sources:

- fees from sale of insurance and structured products
- high margin on their lending vs cost of funds

This is good news for their shareholders. But it is not good news for their bank customers.

The customers probably get a low rate of interest on their savings, and pay high rates of interest on their loans and credit card rollovers.

Make the banks compete - by looking for better choices to earn higher returns on your money. You can also make better investments to earn several tens of thousands of dollars more!

Come and attend our educational seminar to learn how. Call 6877 3366.

Ideal plan can give you $20,000 more

Most insurance companies take away 17 to 19 months of your savings as upfront charge under their investment linked plan (ILP). The ILP plan from NTUC Income (ie Ideal plan) takes away only 7 months. (See www.askdrmoney.com).

The difference is 12 months. We give 12 months of savings extra.

If the monthly saving is $300, we invest an additional $3,600, compared to other plans. Assuming an average return of 6% p.a, the additional investment will amount to $20,000 at the end of 30 years.

They can get $20,000 more, by investing with NTUC Income.

Why do the other ILP plans take away 19 months? Because, they pay higher commission to their agents and aim to make more profit for their shareholders.

Why does NTUC Income take away only 7 months? Because, we pay lower commission and reduce our expenses.

Combined Fund or Global Equity Fund?

QUESTION

Mr Tan

Can I have your advise for a regular saving plan of $200 monthly over a 20 years investment period, into Combined Fund or Global Equity ? Since you did mention that these 2 funds are good. But which one is better if you would like to invest this much over a 20 years period ? Thanks!

ANSWER

I prefer Global Equity, but the Combined Fund (Growth) is also quote good (for those who wish to have a lower level of risk).

I suggest that you attend my educational talks. Call 6877 3366 for the date of the next talk.

Funds managed by Fidelity

FUNDS MANAGED BY FIDELITY

Fund Size and Annual Charge
- Most Fidelity funds are $200m in size.
- Annual Charge is 1.5% for equity fund, 0.75% for bond fund.
- 15 fund offered under CPF investment (3 balanced funds, 1 bond fund, 11 equity funds)

Sales Charge and discount
- Sales charge for bank distributiors is 5%. Discount in the form of higher return on Fixed deposit (at least 3%)
- Sales charge for online distributor is about 1.5% to 2.5%.
- Sales charge for brokers is 5%.

-----------------------------

COMBINED FUND FROM NTUC INCOME

- fund size: $3,800 million
- annual fee: about 1%
- asset class: growth fund (70% equity, 30% bond
- sales charge: 3.5% (reduced for large investments above $20,000)

A better way to pass your assets to your family

FROM A CUSTOMER

I wish to get your expert view.

Currently, many banks are encouraging clients to buy Insurance Trusts as part of estate planning. Typically, it is a significant single upfront payment with both guaranteed and projected returns and insurance payable upon death to named Trust beneficiaries.

Advantages are supposed to be faster probate process, additional estate duty exemptions and protection from creditors

------------------------

MY REPLY

Here a few points.

1. Be careful of the product. You must find out what is the return that you get. Most products offer a fairly low return, due to the high commission paid to the agent or the bank.

2. If estate duty is a consideration, you have two options. One is to write it as a trust policy under section 73, which allows the policy to be treated as a separate estate. This can be done independently of the product. It enjoys special estate duty.

But, under a trust policy, the rights are transferred from the policyholder to the beneficiaries - so the policyholder cannot change the mind and "take back" the money.

3. Another option is to place it under a revocable nomination. This is available from NTUC Income and later from the other insurance company as well.

4. I suggest that you go to read about it in www.KnowYourInsurance.com.sg. Or give a telephone call to X who is our expert on this matter.

5. What you want to do can be done with NTUC Income, and you get a much better return!

Car-sharing is a better option for many people

In the past months, the newspapers had reported on the sharp drop in new car prices.

Many people, particularly the younger ones, rush to the car showrooms and sign on the dotted line to buy their dream car.

This dream may not last when the true cost of car ownership strikes home.

For instance, if you buy an off-peak Nissan with a 95% car loan repayable over 10 years, you have to pay a monthly instalment of around $350. Add road tax, insurance, maintenance, petrol and parking charges, the total cost jump to $600 to $700 a month.

This is not a small sum for a young person just starting out on his career and burdened with a 10-year financial commitment.

I suggest a better option. If your job does not require you to use a car, you can consider car-sharing.

NTUC Income operates a car-sharing scheme with 200 cars serving 5000 members. A member spends between $50 and $200 per month depending on their car usage. For some months, they spend nothing if they are overseas or have other lifestyle priorities.

A car-sharing member have nearly the same benefits as private car owners.

www.carcoop.com.sg

50 million hits a month at our websites!

The two websites managed by NTUC Income, ie income.coop and Big Trumpet, receive a total of 51 million hits in March 2006.

This represents 1 million visitors a month (assuming that each visitor contribute to 50 hits).

This must be one of the most active websites in Singapore.

We estimate that 30% of the visitors are from our own staff and insruance advisers. 70% must be from the public, ie our customers.

Excess on motor insurance

The Excess is the amount payable by the policyholder as their contribution towards a claim.

Some insurers peg their standard Excess just below NTUC Income and publicise it in their materials.

They conveniently omit to mention that young and inexperience drivers are subject to higher Excess.

They also impose an additional Excess for unnamed drivers.

Product Features    INCOME    Co-A     Co-AX      Co-R    Co-C   Co-H
Basic excess        $500     $450   $200-$600    $450    $500    $500
Young driver       $2000    $3000     $2500     $3950   $2500   $1500
Unnamed driver      NA    $450-$550   $500       $750    $500    $500

Is it time to invest in equities?

Two weeks ago, I mentioned that the global equity markets are "correcting". I indicate that I may want to make a further investment within two weeks, after the correction is over.

The correction has been slightly more severe than I expected. So, the various markets have come down by 5% to 10%.

I shall be carrying out a further review. I think that it may be time for me to make my further investment later this week, or earlier next week.

I shall post my decision soon.

Why do customers come to our business center?

Here are the views of 10 customers who bought policies through the Business Center:

1. 40 % feel that agents only come around when they want to sell something and they are agressive in the approach. They feel at ease when they walk into the Business Center to buy their policies.

2. 40 % of them feel that agents do not give after sales service so they prefer to deal with directly with the company. Comment for one PH.....Agents come and go but the company is always there.

3. 20% feel that we give better value in terms of our vouchers (for direct customers).

4. All of them fell it is hassle free and straight forward to deal with the Business Center.

Adjustible Annuity

NTUC Income now offers the participating annuity. It offers a guaranteed payout which is increased each year by a variable bonus. The bonus is usually about 2.5% per annum, but is not guaranteed. In most years, it should vary from 1% to 4%.

A male at 62 investing in this annuity will get a return of 6.3% plus bonus. If he invest $100,000, the payout is $524 per month. This will increase with the yearly bonus.

Assuming the bonus is 2.5% per year, the annuity will increase to $671 after 10 years and $859 after 20 years.

Some policyholders have asked us to provide a higher payout in the earlier years. One option is for us to offer an adjustible annuity. It will pay $660 a month, of which $524 is guaranteed and $136 is adjustible.

If the average return on our investments is 5% per annum, the annuity will remain the same. If the average return is higher than 5%, we will adjust the annuity upwards. If it is lower than 5%, it will be adjusted downwards, but will not be less than the guaranteed floor of $524.

We will make gradual adjustment, by looking at the average return over a few years.

We have not yet decided to offer the adjustible annuity at this time. If there is sufficient interest, we may offer it in the future.

Poor performance of two bond funds

QUESTION FROM POLICYHOLDER

I have invested in your 2 bond funds. I want an explanation for the under-performance of these funds. I have attended your talk. You said if fund manager consistently do not perform you are going to remove them. Why have you NOT kept your word?

Now it has been 3 years of underperformance - you are still going to keep them? Or are you going to do the right thing for policyholders who have entrusted our money to you? Customers expect swift and robust action to correct this problem!

REPLY

NTUC Income operates two bond funds - the Global Bond fund and the Singapore Bond fund.

The annualised return for the past 3 years is:

Global Bond - 3.4% p.a. (benchmark: 3.3% p.a.)
Singapore Bond - 1.2% p.a. (benchmark: 1.8% p.a.)

The return on Singapore bonds has been rather low, due mainly to the low interest rate in Singapore.

The return on the bond funds are affected by the recent increase in interest rate. This is a temporary situation. If the investment is kept for a longer period of 5 to 10 years, the average return will be about 3.5% p.a.

Investment in bonds have low risk, but the return is also low.

If the actual performance is within 1% of the benchmark (in the case of bonds), we consider the performance to be acceptable. We have to accept a small degree of fluctuation.

My advice: If you are investing for 10 years or longer, you should choose the global equity or the combined fund. Risk is to your advantage.

Bank customer has bad experience

FROM A BANK CUSTOMER

When I visited a bank A to put my money in a fixed deposit, I was treated to personalised service at a sit down counter. If I decide to withdraw, I have to line up at the regular counter.

The bank has a roving officer who checks periodically on everyone in the queue regarding their transaction. The hard sell is strong.

When she came to me in the withdrawl queue, she tried to interest me in structured products instead, citing that they gave better returns than fixed deposit. This is a trap for the uninformed.

------------------------------

During the the last six months, I went to my bank B on two occasions to renew a deposit and to enquire about a shield plan.

On both occasions, the bank officer has online access to my particulars. When I gave them my NRIC, they know what products I have with the bank.

The bank officer saw that I have a particular unit trust with the bank. The officer tried to get me to sell that unit trust (stating that it is not doing well) and get me to buy a different unit trust.

They recommended recommended different products on two occasions.

I was quite confused at that time. I bought the unit trust 5 yrs ago, and it was losing money all these years. Now that it is finally on the uptend, they were asking me to sell. Luckily I decided to not act rashly.

----------------------------------

I now realise that their real interest was probably in the commission they would make by selling a new product to me. Straight away, they make 5% and I lose another 5%. Nobody was interested in what was best for me.

It is like preying on my fear - that I should get out of a money losing decision made earlier. If I run now with at least my capital intact. But I realise that this is getting from the frying pan into the fire. I recover my capital and straight away give away 5% to someone else again !

It is a world of predators out there! I shall never trust anything sold by banks again. My interest is the last thing on their minds!

Feedback about the Business Center

I received two feedback about the business center.

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Having just started working full-time after graduating, I have been shopping around looking at various financial plans and insurance policies. Most agents I meet are terrifyingly aggressive and pushy, with their emphasis seemingly being on “Sell! Sell! Sell!” while I sit there, bewildered and intimidated by lists of figures and percentages.

It is reassuring and encouraging to know where NTUC Income’s heart lies and the ethics you work by. I’m definitely looking forward to a consultation with your financial planners!”

JT

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The new business centre caters to consumers like me, someone who is not comfortable to speaking with an agent but still wants the consultation and advise necessary to
make informed decisions on financial products.

There are far too many financial products floating about in the market. Consumers are often confused and frightened off and as a result not take any steps to help themselves. With the business centre, consumers are encouraged to take the
initiative to seek advise without being solicited and without the pressure of having to make any purchases.

Your business centre is a fine example of the cooperative's ethos and philosophy of putting the consumers' needs, concerns, trust and care above all else."

NM

Why prior approval is useful

I wish to share an experience involving someone I know. It illustrates the importance of getting prior approval for expensive medical treatment.

Mr Koh went to see a specialist for a medical condition. The specialist carried out some complicated tests. He told Mr Koh that his condition is serious and needed to be treated immediately.

Mr Koh signed the consent letter and was operated. He was discharged a few days later. He received a bill for more than $30,000. Mr Koh was not insured.

Mr Koh consulted his personal doctor. The doctor told him, "Mr Koh, you are already 80 years old. This type of medical condition is not serious. The operation is not necessary for a person of your age. Why did you agree to be operated?"

Mr Koh paid the bill. He decided not to pursue the matter.

Lesson: If Mr Koh is insured and has to consult his insurance company, he will be able to get a second opinion. In fact, the specialist will not dare to recommend an unnecessary operation, as he might be questioned.

20 insurance advisers left NTUC Income

The Straits Times reported that 20 insurance advisers left NTUC Income to join other insurance companies, due to unhappiness with our insurance business center.

This is true. But it does not give the complete picture.

Each year, an average of 40 insurance agents from other companies join NTUC Income. They find it easier to sell our products, which give better value to their customers. Although they earn a lower rate of commission, they are able to earn more through a higher volume of sales.

Some join as supervisors or salaried consultants on fixed salaries.

NTUC Income aims to provide a new channel for people to buy insurance. We want to educate consumers and allow them to buy insurance from our business centers.

We will continue to have insurance advisers, who sell insurance to customers through the traditional way, by visiting their home or workplace. They continue to offer good value products to our customers.

There will be two channels to serve the two different groups of customers.

Get good leaders in government

At each general election, there is the risk that some of our experienced ministers may not get elected into Parliament. People worry that this may disrupt the smooth running of our country.

Is there a different way to "find" capable people to run the country?

The American system provides an interesting alternative.

The citizens elect their representatives into Congress, which is the equaivalent of our Parliament. Each district elect their own representative. They do not have a "group consitutency" system.

The citizens also elect their President and Vice President to run the country. The President cannot run the country on his own. He nominates capable people to be secretaries of the various departments. These secretaries perform roles that are similar to our ministers.

For example, their secretary of state is like our foreign affairs minister. The secretary of the treasury is like our finance minister.

The nominees have to be approved by Congress, which are the elected representatives of the people.

I think that Singapore can adopt this aspect of the American system. We do not need all ministers to be members of parliament at the same time. If necessary, we can appoint a minister from outside of Parliament, if they get the approval of a select committee of the Parliament.

Insurance Business Center

NTUC Income now provides a new channel to service our customers.

At our new business centres, our salaried insurance consultants are on hand to assist you.

You get suitable advice on insurance and financial planning, without feeling obliged to buy the product. You enjoy a lower premium and a better return on the insurance and investment products from NTUC Income.

You can also get a modest incentive by buying through our business center.

Our business centers are conveniently located at Bras Basah Road and Tampines Point.

Call 6877-3366 for an appointment.

More people now read my blog

My site meter said that 350 people visit my blog last Friday and 400 visit yesterday. Wow.

Previously, I received an average of 150 visitors daily.

If you like my blog, tell your friends to visit it.

Auto-renewal of fixed deposit at poor interest rate

Dear Mr Tan,

My $50,000 FD was auto-renewed 1 month ago at 1.7%, although the same bank is offering about 3% for other customers.

Probably, after this similar incident was highlighted in your blog, the bank finally tele-invited me to renew my FD at a higher rate of 3%. But I think it is still not fair that the 3% will be effective only from the date when I made a personal request at the bank to renew it.

I trust the banks to auto renew my deposit at the best rates and yet got a lousy deal in return for my trust.

Hazel

Positive feedback on Insurance Business Center

Dear Mr Tan,

Having salaried insurance consultants who are not commission based at NTUC Income's Insurance Business Centre is a fantastic concept. It shows that NTUC Income understands the needs of their customers.

My expereince dealing directly with either financial consultants from banks or insurance agents has left me with a somewhat negative impression as many push products and services which may not be entirely suited for me. At the back of my mind I always question the sincereity of the agents as hitting sales targets and earning a commission will still be their priority.

I look forward to going to NTUC Income's Insurance Business Centre for a financial evaluation soon!

RT

Bank customer is unhappy with renewal of fixed deposit

FROM A BANK CUSTOMER

I wish to bring up a disgusting issue regarding the behaviour of my bank.

My fixed deposit of $50,000 with bank X matured recently. The bank auto renewed it at 1.88%.

When I found out, I was so angry that I decided to withdraw the money. This bank has been offering 3% for a new deposit. And yet, the quietly renewed my deposit at a lower rate.

I am angry on behalf of all the people out there, especially those the retirees who are not so well educated. They trust the banks to auto renew their deposit at the best rates. They get a lousy deal in return for their trust.

If they threaten to take out their money and go to another bank, they will get a higher interest rate.

Our banks seems to be playing games, trying their best to OUTWIT and take advantage of the poor, uninformed consumer with their fancy tricks.

I'd say this is blatant cheating by institutions that are supposed to be high on trust and credibility.

Make the right choice. Earn $146,000 more!

Many people are approached by their friend, who is an insurance agent, to buy a life insurance policy. They obliged. They have to pay a big premium for many years.

If they buy the wrong product, they will get a poor return. The difference can be a lot of money.

If you invest $300 a month over 30 years, the difference (between earning 2% and 6% per annum) can be as much as $146,000. Yes, you can earn $146,0000 more when you buy the right product!

Even if you buy the right product to earn 6% per annum, the difference (between buying from company A and company B) can be as much as $60,000. It depends on the charges that are taken from your investment.

Wow. That is a lot of money.

Take my advice. Attend our educational seminar. Spend 2 hours only and learn how to make the right choice. It can be worth $146,000 more to you!

You can also get advice from our salaried consultant at our Insurance Business Center.

Call 6877 3366.

Better to invest in ILP or unit trust?

QUESTION FROM THE PUBLIC

1. According to Dr Money, he has grouped unit trust seperately from insurance (ie ILP). Please explain the difference.

Reply: An ILP is offered by an insurnce company. It combines insurance with investment. An insurance adviser sells the product.

A unit trust is operated by a fund manager and distributed by a bank or a financial adviser. Apart from the charge by the unit trust operator, the financial adviser usually add another layer of charge.

2. Does that mean that unit trust usually charges a higher sales fee as compared to an ILP. What about the returns? Which one tends to give higher returns?

Reply: Different unit trusts and ILPs have different charges. It is very difficult to generalise. Many of them (except for NTUC Income) aim to make much profit, so they give less to the investors.

3. If I were to invest in an ILP, say the ideal plan, is the insurance component compulsory? Can I opt for 100% into investment alone?

Reply: If you buy our ideal plan, it is not compulsory to pay for insurance. You can opt for 100% investment. You can buy insurance separately, if you wish. We offer low cost term insurance.

TO FIND OUT MORE.

I suggest that you attend my education talk. You can register for the "financial tips for the young" http://www.income.coop/seminar/

You can also see a salaried consultant by visiting our business center.
http://www.income.coop/businesscentre/

How to save for a child?

QUESTION:

I really enjoyed reading your blog. You never failed to give some of your advice and experience with your readers.

May I know if there are any investment or insurance products suitable for children?

School-going children receive pocket money from their parents. Parents usually save the money into the banks which give very little interest. Are there any suitable financial products which allow this money to grow?

MY REPLY

I suggest that you save in an Ideal plan as well, if the saving is at least $50 a month. The saving can be accumulated to meet the cost of tertiary education. I will ask my colleague to call you and explain how this works.

Equity markets are "correcting"

The major equity markets (USA, Japan, Europe) have dropped by about 3% during the past week. It is described as a "correction".

This is healthy, and is to be expected. It is good to have a correction, after moving up strongly for the past 2 years.

I am getting ready to increase my investment. I will probably wait for 1 or 2 weeks before I decide. If the market falls by a further 3 to 5 percent, it will represent good value.

For my current investment, I will keep it fully invested, as a long term investment. I do not wish to get out, because I may miss the turn-around in the market.

Advice: Don't buy structured products

Summary of an article from Dr Money's website: www.askdrmoney.com

Structured investments, deposits and guaranteed funds are a popular investment, distributed mostly by banks.

Issuers came up with something like a customised gambling product. The product might take 20 well-known stocks, for example, and let people place bets on which three would appreciate the most over 5 years.

It is difficult to guess the outcome. The odds are structured in such a way to give you a big payout if you win. And it provides you a "guaranteed" minimum return. It looks like a good investment, with no risks and good upside potential.

But it has many negative features.

1. Distributors are mostly banks. Their standard fee is 3 per cent of the amount invested. This charge is deducted from the net asset value of your investment. If you sell your investment immediately after purchase, you would receive back 97 per cent of your investment. Ultimately, the sales commission reduces your yield.

2. Issuers are the architects who design the structured product. They invest your money, after the distributor sends it to them. It is NOT possible to know how much the issuer takes from returns. You can ask the issuer or the distributor but they won’t tell you. It could be, say a fixed 2 per cent per year when total returns are between 2 and 6 per cent.

3. The structured product is linked to return from the underlying investments. If the return is high, the issuers have found a way to give you only a part of the gain, and to keep the excess return for themselves. They cap your return.

You can never know if you are getting a fair return for your money. It depends on how the product is designed.

Insurance Business Center

FROM A CUSTOMER

Dear Mr Tan,

I applause the new initiative from NTUC Income to create the insurance business center.

While many insurance companies invest large portion of their revenue to re-invent their corporate branding, NTUC Income created this business model to benefit your policy-holders where affect them most ... pocket !

Moreover, this business model will guide insurance advisors to be more service orientated and not strictly committing to sales target. A potential customer can be assured that the recommendation by insurance advisors from Insurance Business Centres is genuinely suitable for them and, or their requirement(s).

I have no doubt that this business model will obviously take some time to materialize since this is a brand new concept that seem impossible previously. Clearly this is another resemblance of a budget terminal or budget airlines; but most importantly, does not reduce in it's coverage.

VF

Be careful about product advertisements

Here is a product advertised by a bank: "Fixed payout of 5.5 %, 6 months after the inception date."

Here are the facts:

- Many customers think that this means 5.5% return for 6-month return, or 11 % per year. This is not correct.

- To make this payout, the fund dips into the its capital. The fund is giving back part of your own investment and calling it a "payout".

- The actual return is linked to products and events which are very difficult to forecast. In this case, "the fund is linked to 6 Asia-Pacific market indices" and their performance over a period of 4 years and 11 months. You do not know what you will get.

GET MORE INFORMATION ABOUT BANK PRODUCTS FROM:
http://www.askdrmoney.com

30,000 happy policyholders

30,700 policies will have their policies maturing in 2006. The total payout is $623 million. The average payout is $20,300 per policy.

If these policyholders had taken a similar policy from another insurer, they will receive 10% to 15% less than the payout from NTUC Income. Why? The other insurers pay more commission to their agents and give more profit to their shareholders (at the expense of the policyholders).

NTUC Income is able to give a better return to our policyholders because we keep our expenses low, and give more of the surplus to our policyholders (instead of shareholders).

Our recent comparision show that our payout is 10% to 15% more than similar policies taken through our competitors. The difference could be more, for the longer term policies.

It is better to insure with NTUC Income. You will benefit in the long term.

Good return on money market fund

NTUC Income has a money market fund. It will be invested mainly in interbank deposits, which now yield 3.15% pa to 3.38% for maturity of up to 12 months. These deposits are readily available and liquid.

We deduct 0.25% from the money market fund to cover our expenses. This will give a net yield of about 3% for investors. It is very attractive.

As the money is invested with a bank, it is quite safe. Almost like placing a fixed deposit with a bank.

How do you invest in our money market fund? We are launching the Flexi-Cash policy, which is invested in this fund. Watch out for our advertisement in two weeks' time.

Poor return from a policy sold through a bank

A client bought a policy from another insurer sold through a bank. She pays a premium of $50 a month through GIRO. The return is guaranteed to be $10,360 on the maturity date at the end of 15 years.

Is this a good return?

No. The return is 1.85% per annum.

Many people are not well educated. The older folks are being talked into buying a policy that they do not know in details.

My advice. If you are approached to buy a policy through a bank, and you do not know much about it, please ask before you get committed.

Know what you buy.

Client invested another $300,000 in the Combined Fund

FROM AN INSURANCE ADVISER:

I just had the opportunity to come back with a $300,000 from a client who had invested on Growth Fund with us more than a year ago. He knows the potential of this fund. I updated him with a spreadsheet of his investments.

CEO Tan Kin Lian sent this message to my client:

"I have most of my personal savings in the Combined Fund (Growth). I think that it is good for the long term.

Another good fund is Global Equity. I believe, that over 20 years, this fund is likely to earn at least 6% to 8% per annum, and quite safe. It may go up and down, but the average should be within this range. The average for the past 10 and 20 years is closer to 8%."

When I met him last evening, he told me, market seems high now, but it's okay, it is for long term. How old is he? 56.

He said, put the $300,000 in Growth Fund. Wow....

Policyholder got an attractive return

AN INSURANCE ADVISER SENT THIS MESSAGE TO ME

I am writing on behalf of my prospect whose NTUC policy is about to mature on 24th June 2006.

When she bought the policy 19 yrs ago, her son was 2 yrs old so based on him going to University at age 21, the NTUC adviser recommended her the 19 year endowment.

She has been quite happy with NTUC having paid quite good bonuses over the years, even during the SARS, Sept 911 & various other difficult periods.

However, recently she was very disappointed when she received your company's letter advising her of her maturity benefit.

Her disappointed was in the vast difference between her gross maturity benefit of $41,458 and the total projected maturity of $45,012. This represents a hefty 7.89% less than the projected $45,012.

Hence, she has expressed her extreme loss of confidence towards NTUC.

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HERE IS MY REPLY.

The policyholder paid a monthly premium of $102.70 for 19 years. Total premium paid for 19 years is $23,416. The maturing benefit of $41,458 represents a yield of 5.8% per annum.

You can tell the policyholder that the return of 5.8% per annum is quite attractive.

Our payout is about 10% to 15% higher than the payout offered by other insurance companies under a similar plan.

Comparison of premium rates - medical plans

 
Incomeshield, subject to category limits 

Total premium for age 20 to 80
Plan  Income   Co-G   Co-A   Co-P

P     47334     NA     NA     NA       
A     32790   36463  42652  42670      
B     19648   23127  25650  26765          

Total premium for age 40 to 80

Plan  Income   Co-G   Co-A   Co-P
P     44456     NA     NA      NA
A     30651   34209   40265  40320  
B     18464   21747   25019  24249  
 
Enhanced Incomeshield, ie "as charged"
Total premium for age 20 to 80        
 
Plan       Income   Co-V
Preferred  56405    58283              
Advantage  40559    44866             
Basic      22945    30267              

Total premium for age 40 to 80

Plan       Income   Co-V
Preferred  53141    54777
Advantage  38301    42410
Basic      21511    28508

I moved to Global Equity

I have $120,000 of my CPF savings invested in the Combined Fund (Growth) and Singapore Equity Fund. I have just decided to switch these investments into the Global Equity fund.

Here are my reasons.

1. The forecast PE ratio of USA and UK are expected to drop by about 15% to below 16 times. This suggest that earnings may increase by 15% during the next 12 months.

2. The forecast PE ratio of Singapore is likely to increase by 15% to above 16 times. This suggest that the earnings of Singapore companies may drop by 15%.

3. The Singapore market has done very well up to now. It is moving up further, after the general election. I decided that it is time to make a switch.

I continue to have other investments in the Combined Fund (Growth) and in other funds that are invested in Singapore equities.

Do you believe a broker who is driven by commission?

Some brokers and agents prefer to sell the medical or motor insurance plans offered by our competitors.

Why?

They earn a higher commission from the competitor.

Although the premium rates offered by NTUC Income are lower, they discourage consumers to buy from us by making statements such as "the service is poor; it is difficult to make a claim".

Do you believe the broker or agent? If our service is poor, why are we able to get a large market share?

Do not believe someone who is driven by their personal benefit. Check out for yourself.

Enhanced Incomeshield

NTUC Income now offers the Enhanced Incomeshield. It pays for medical expenses in hospital "as charged".

A policyholder asked me, "Why is NTUC Income covering 'as charged', when I indicated earlier that this may lead to escalation in medical expenses?"

Here are three reasons.

1. Some policyholders indicate that they are willing to pay a higher premium for the "as charged" plan. We wish to meet the wishes of these policyholders.

2. Our "as charged" plan requires prior approval, except for emergency. This is to allow our medical adviser to give a second opinion of the proposed treatment and to avoid unnecessary treatment. In most cases, approval will be given within one day.

3. We will continue to offer the basic Incomeshield, which is subject to limits for each category of treatment. Our basic plan will continue to be the most affordable in the market.

Initially, the enhanced Incomeshield cost about 15% higher than the similar basic plan, but this difference may widen in the future, based on the claim experience. We will try our best to keep the premium rates at an affordable level for the enhanced plan. It depends on our ability to prevent escalation in medical expenses.

If the gap widens, some policyholders may wish to opt back into the similar basic plan (which will continue to be avaialable) to enjoy the lower premium rates.

Our strategy is to offer a choice for consumers.

Poor return from 10 year endowment

A retiree asked me, "Mr Tan, I took a 10 year endowment from another insurance company (ie not NTUC Income). I paid $1,200 a year. The policy originally projected a return of $14,000 on maturity. It matured recently and I received just $60 more than the $12,000 that was paid. Just $60. Is this a fair return?"

I replied "No. It is a poor return".

She asked, "Why is it so poor?"

I replied, "The insurance company paid high commission to the agent. The investment return during the past 10 years was low. After deducting expenses and the profit for their shareholders, they are only able to just return your premium back to you."

If the retiree had taken a 10 year endowment from NTUC Income, our payout would be 10% to 15% higher. We pay a modest commision to our agent, and our shareholders get only a modest rate of dividend. Most of the returns are given to our policyholders.

Advice: Insure with NTUC Income. We keep our expenses low. We distribute most of the profits to our policyholders. Our shareholders get a very small share of the profits. We are a cooperative society.

Are the stockmarkets too high?

Based on current interest rate, it is possible to justify a PE ratio of 20 times.

Here are the PE ratio of the various markets:

World Price-Earnings
                       P/E   Est. P/E
Japan (Nikkei 225)    43.93   49.64
Singapore (STI)       14.51   16.35
US (S&P500)           17.97   15.59
Indonesia (JCI)       20.27   15.93
Malaysia (KLCI)       15.78   15.91
Taiwan (TWSE)         19.97   15.12
Italy (MIB30)         15.19   14.29 
Hong Kong (HSI)       13.32   14.21
Germany (Dax)         14.94   13.95 
UK  (FTSE100)         15.43   13.37
South Korea (KOSPI)   12.45   13.34
France (CAC 40)       14.68   13.33 
Thailand (SET)        10.58   11.59

P/E is calculated on trailing 12 months net earnings (after tax) per share of component stocks.

Est P/E is calculated based on IBES earnings estimates.
    

Based on estimate PE (ie for next year), Japan and Singapore looks relatively expensive, while South Korea and Thailand looks cheap.

However, at estimated PE of 16 times, the Singapore market still looks acceptable. So, there is nothing to be concerned about.

It seems that the profit is forecasted to drop for Japan, Singapore, Hong Kong, South Korea and Thailand over the next 12 months.

P/E is calculated on trailing 12 months net earnings (after tax) per share
of component stocks. Est P/E is calculated based on IBES earnings estimates.

I

Safe Deposit Box

Many people queue for a safe deposit box provided by their bank.

Here is another option. NTUC Income has partnered with CISCO to provide a safe deposit box to our policyholders on attractive terms. Their boxes are located at Paya Lebar.

A few policyholders have taken up the offer. We interviewed 30 customers why they like the CISCO service. Here are their views:

- Longer access hours 41%
- Able to get the box immediately 21%
- CISCO branding - 15%
- Stay near to CISCO 13%
- Promotion 5%
- No fixed deposit required 5%

If you or your friend is looking for a safe deposit box, send an e-mail to edgar@income.com.sg.

Feedback: Financial Tips for the Young

E-MAIL FROM SOMEONE WHO ATTENDED MY TALK: FINANCIAL TIPS FOR THE YOUNG.

Many thank for your interesting talk on financial tip for the young . I enjoy your talk. Due to time constraint, I was not able to get some queries answered. I hope to get the answer through e-mail .

1) You mention that the combined fund charges 1% annual fee. May I know the expense ratio of combined fund?

Reply: I am not clear what is being used to compute the expense ratio. Anyway, you can look at the comparison in this webpage by Dr Money:

http://www.askdrmoney.com/Ins_ILP_SP.htm

It shows NTUC Income's expense ratio to be 1% and other funds to be 1.5% to 2.5% per annum.

2) Other than through an insurance plan, can I invest in the combined fund directly through other distributers, such as Fundsupermart, DollarDex, etc

Reply: You can only invest through our insurance plan (Flexi-Link). Our fee is quite low. You only pay a 3.5% upfront spread. If you invest a large sum during our promotion, you give you bonus unit of up to 2%. So, this reduces the upfront fee to only 1.5%. You get some life insurance cover for free. So, the Flexi-Link plan is almost as good as any unit trust.

3) You mention that the return of combined fund since 2003 have exceed the target 6% return per year. Where can I see the information on NTUC income funds, such as benchmark, annual return since inception, turnover ratio, etc.

Reply: you can get the information from this webpage: http://www.income.coop/insurance/flexilink/

4) I understand from the talk that we shall invest in a fund that offer low cost. There is an asset class like ETF exchange traded fund, where the annual charges is only 0.3%, which is lower than 1% for the combined fund. What is your comment?

Reply: Yes, it is good for you to invest in ETF. It comes with low charges.

Actually, a portion of our Singapore Equity fund is invested in ETF. So, we are reducing our annual charge for the Singapore Equity fund to about 0.6% In my view, it is easier to invest through the FlexiLink from NTUC Income.

5) You mention that an investor should be wary of muliple layer of charges when investing in unit trust. Are you referring to a feeder fund that pass the money to mother fund? How can a retail investor find out about these charges? Most of the charges of unit trust are hidden and are not transparent to investor.

Reply: Yes, most of the funds hide this fact. It is quite difficult for you to find out. I am not able to find out myself.

6) You recommended iYoung plan. If I buy iYoung at age 27, can I still remain cover after age 30. If not, what is the alternative cheap term insurance ?

Reply: I suggest that you buy our low cost term assurance now, rather than i-Young (which is intended for someone in the early 20s.

You should make a financial plan now and invest in the Ideal plan with low cost term assurance.

7) Thank you for providing your time, effort and resource to educate the public like me. I enjoyed your talk .

Reply: Please encourage your friends and colleagues to attend my educational talks. A list of talks is given in our website:
http://www.income.coop/seminar/

FAQ: Flexi Cash

1. What is this plan

Technically, it is an investment-linked plan that invests your savings in a money market fund. But to you, it may look more like a savings account that pays high interest.

But like a savings account, you can withdraw your money at any time. You are not locked in for one or two years, with a penalty for early withdrawal.

Flexi-Cash is a safe investment that pays a high rate of interest.

2. What is the expected return?

The current return on the money market is about 3.3%. After deducting 0.25% per annum for this fund, the net return to the investor is likely to be slightly more than 3%.

As the return on the money market is a floating rate, the return on this plan will also fluctuate. As interest rate is likely to increase in the near future, the return on this plan will similarly improve. You enjoy an attractive, floating rate. You are not locked in to the current rate for one year or longer.

It is possible that interest rate may come down some time in the future. The return from the fund will reduce accordingly.

3. What is the upfront spread and annual fee?

The spread is 0.25%. It is much lower than the spread for equity or bond funds, which vary from 3.5% to 5%.

During the promotion period (ie for the launch of this product), the spread is reduced to 0.1%. Yes, it is just one-tenth of 1 percent.

The annual fee is 0.25 %. It is subtracted from the inter-bank yield. You will be paid the difference, which is now about 3 %.

4. Is there any penalty on withdrawal?

There is no penalty. You can withdraw your savings at any time, based on the bid price (ie net asset value) of the money market fund.

The net asset value should be quite close to your invested capital, less the upfront spread (of only 0.1% during the promotion period), plus the interest earned on the money market (less the annual charge of 0.25%). This is almost like getting an interest rate of 3% on your savings.

5. What is the minimum amount of investment?

For an initial investment, the minimum is $5,000. For topping up
and withdrawal, the minimum is $500.

6. Are the fees subject to change?

Yes. We will give at least 30 days notice of any change. We are likely to
change the initial spread to 0.25% after the promotion period.

We will try to keep the annual fee to the very low rate of 0.25%.

We will only increase it in the future, if the fee is insufficient to meet our
operating expenses, and the interest rate on the money market
exceeds 3.5%.

Our aim is to give an net return that is attractive to our policyholders,
and higher than other types of similar investments.

7. What is the risk of losing my capital?

The risk is very small, almost negligible. The fund is invested in the
interbank market. The borrowers of the funds are the banks. A small
portion is invested in A-rated floating rate notes issued by corporate
bodies. As the rating is A or better, the risk of loss is quite small.

8. Is there any capital guarantee?

The basic product does not come with any capital guarantee.

The investor can buy a capital guarantee separately at the cost of 0.5%
per annum. By paying this cost, the investor is guaranteed that the
principal at the end of 12 months will not be lower than the principal at
the start of the guarantee period.

Effectively this reduces the return by 0.5%. So, if the return is 3%, the
net return after paying for the guarantee is 2.5%.

In my view, there is no need to buy this guarantee, as the risk is
negligible. Even if there is a loss, the amount of capital loss will be
very small.

9. Is there any insurance cover?

The basic policy provides a very nominal insurance cover.

It guarantee that in the event of death, the sum assured will not be lower
than the amount that has been invested. This means that any capital loss
(which is most unlikely) will be insured in the event of death.

If you wish to buy additional cover, we recommend that it be purchased
through a separate low cost term assurance plan.

10. How do I buy this plan?

You can come to our insurance business center (located at Bras Basah Road
and Tampoines Point). You can also see our insurance adviser.

Tentatively, the plan will be available from 1 June 2006.

Educational Talk - Financial Tips for the Young

In my educational talk, I give 3 tips to young people. They are worth at least $20,000. It could be worth as much as $150,000.

By choosing the right investment product, i.e. safe, well managed, low charges, a young person can earn up to $150,000 EXTRA over 30 years. This is the additional return, compared to investing in a low yielding investment.

The secret? Invest in a large, well-diversified, low charge fund. Invest in global equity. Invest for the long term.

I conduct a 2 hour educational talk every week. Here are the dates and venue. Just 2 hours, and you can earn $20,000 more. Or maybe, $150,000 more.

Title of talk: Financial Tips for the Young

09-05 7-9 pm Fengshan Community Club, Bedok North
13-05 2-4 pm NTUC Income Center, Bras Basah Road
25-05 7-9 pm HDB Hub, Toa Payoh (Chinese)
27-05 2-4 pm NTUC Income Center, Bras Basah Road

To attend: call 6877 3366. Bring your friend along.

My own flexible annuity

I have created my own flexible annuity.

I invest my savings in the Flexi-Link plan. It is invested in the combined fund (growth) and in Singapore equity. I may switch a portion into Global equity within two years.

I have started to make monthly withdrawal from my Flexilink. Since I am still working, I just make a token withdrawal of $100 each month. It is deducted from my Flexi-Link and credited to my bank account during the first week of each month.

This is working well. I get an e-mail each month saying that $100 is credited credited to my bank account, and x number of units are encashed. I checked my bank account (through the internet) and found the $100 has been credited.

When I retire in a few years time, I will increase the monthly withdrawal to $3,000. I may change it to a larger or smaller sum, according to my needs. It is flexible.

My investments produced a yield of about 15% per annum for the past three years. Wow!

Looking towards the future, I hope to get between 6% to 8% per annum over the long term. This is possible, based on the benchmark return on equity for the past 10, 20 and 30 years.

Lifestyle funds

Some fund managers advocate investing in lifestyle funds. For example:

- for young investors: high proportion of equities
- for older investors: high proportion of bonds

In my view, if the investment is for retirement needs, it is better to invest in equities, even for older people.

If you are now 60, the average lifespan is 20 years. If you draw down your retirement funds in monthly instalments, the average duration of your investments is more than 10 years. So, an equity fund is quite suitable.

When you reach age 70, you can consider to move some of the investments into a bond fund. At that time, you should choose the right time to make a switch. The stockmarket goes in cycles of 3 to 5 years. If you choose the right time during this cycle, you can get an attractive return.

Alternatively, you can cash out and invest in a life annuity.

Create a flexible annuity

Here is a simple way to create your own flexible annuity.

Invest your savings in a global equity fund. It should earn you between 6% to 8% per annum over the long term.

You can make a regular withdrawal of your investments, representing 6% to 10% of your principal.

Assume you invest $500,000 and you wish to withdraw 6%, ie $30,000 a year or $2,500 a month.

If your investments earn 6% or more, you capital will not deplete. In fact, it may grow after allowing for your withdrawal.

If you draw out more than the amount earned, your capital may reduce gradually. But if the excess withdrawal is small, the capital can last for a lifetime.

On death, there is a balance of the capital that can be distributed to your family.

You can have the flexibility to draw out a larger or smaller monthly sum to meet y our needs. You can also draw out an once off amount to meet medical expenses or for a vacation.

At any time, you can calculate how long your capital will last. You can make sure that it will last until you reach (say) 100 years old.

The Flexi-Link plan from NTUC Income allows you to specify a monthly withdrawal from your investments. It also allow you the change the amount.

Choose a low cost fund and earn $55,000 more!

Some equity funds charge an annual fee of 1%. Some charge 1.5% or even 2%. In some cases, the financial adviser charge a separate layer of fee (say 0.5%) in additional to the fee charged by the fund.

If you invest $100,000 for 20 years, the difference of 1% in annual fee can amount to $55,400. Here is how it works out.

Assume that the average yield on the fund is 7%.

If the net yield is 6% (ie deduct 1% fee), you will get $320,700.
If the net yield is 5% (ie deduct 2% fee), you will get $265,300.
The difference is $55,400.

Wow! That is a lot of money!

Is there a difference in the quality of fund managers?

If you invest in a large, well diversified and properly managed fund, the different funds should earn nearly the same yield over a long period. The higher fee goes to increase profits for shareholders.

So, take my advice. Choose a fund that charges an annual fee of 1% (instead of 2%).

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Here are the figures available from the website: www.askdrmoney.com

Best ILP (single premium)
Average Expense Ratio of equity fund

NTUC Income    1.0%
Company G      1.4 %
Company P      1.5 %
Company A      1.9 %
Other insurers 1.7%-2.2%

Flexi-Cash gets good response

I posted some details of an innovative new plan, called Flexi Cash. I received 3 e-mails from readers of my blog within one day. They were interested to find our more details. Wow!

Actually, the Flexi Cash plan will only be available from 1 June 2006. But, as there is strong interest, I shall try to speed it up.

Some details will appear soon in the website www.income.coop. If you are interested, you can register your name at the website. We will come back to you as soon as the details are ready.

Tips for the Young: Educational Talks

Learn about Tips for the Young.
The tips will be worth more than $20,000
Can be as much as $150,000!

Talks will be held on:

9 May
13 May
27 May

Call 6788 3366 (Act now - it is your financial future!)

Flexi-Cash: Earn 3% or more for your savings (low risk)

NOTE: This is a preliminary announcement. This product
is targetted to be available by 1 Jun3 2006. More
details will be provided later.

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An innovate plan from NTUC Income.
Allows you to earn an attractive rate of interest.
Currently, around 3% per annum.

The interest rate will adjust according to the market.
You can earn more, as interest rate is expected to increase.
Very low risk - as the fund is invested in interbank and well rated floating rate notes.
No lock-in period - can withdraw at any time, without penalty.

Footnote:
The return will be based on the money market fund, less 0.25% p.a
Initial spread of only 0.1% (during launch promotion)
Minimum investment of $5,000