The Supplementary Retirement Scheme (SRS) is designed to help you prepare for your retirement through investments, as opposed to the typical savings accounts and Central Provident Fund (CPF). When uninvested, SRS funds only earn a very low interest rate of 0.05% per year, which is lower than the inflation rate!
On top of this, returns on SRS investments are tax-free until you withdraw them, making it a great option for you to earn interest, while enjoying tax concessions now and upon your retirement.
Read more about how to use SRS for tax relief here.
As such, if you want to ensure your money doesn’t lose its value when you retire, you should invest your SRS funds into various SRS-approved instruments, such as Fixed Deposits, Singapore Savings Bond (SSB), or Single Premium Insurance Saving Plans, so you can passively earn better returns that can beat inflation.
Now that you understand the importance of investing your SRS funds, you should strategise your retirement planning and make investments that complement your current portfolio. For example, if you are already doing investments in equities or REITs outside of your SRS accounts, you can consider investing in a life annuity plan.
So here’s what you can invest with your SRS funds, based on your goals and risk appetite:
1. The Safest & Guaranteed Way – Fixed Deposits, SSBs, Endowment Plans
Perhaps you’re already investing in high volatility investments with your money, or you’re close to retirement age, so you just want a guaranteed, safe investment option where you can grow your SRS funds slowly and steadily. If this is you, you can consider investing in Fixed Deposits, Singapore Saving Bonds (SSB) and Endowment Insurance Plans.
All of the above mentioned options are low risk, and are capital and interest guaranteed. With Fixed Deposits, you’ll probably get the lowest interest, typically around 0.05% p.a. to 0.5% p.a. returns.
On the other hand, you might need some luck with SSBs, as the interest rate that you may get might fluctuate from time-to-time. Nevertheless, you’ll still know clearly how much your annual returns are in the next 10 years.
Meanwhile, Endowment Insurance Plans may offer you the best bang of your buck. This is because Endowment Insurance Plans offer the best guaranteed return, usually totalling to approximately 3-4% p.a., on top of providing you life insurance coverage. There are also some Endowment Insurance Plans, such as MyLifeIncome III, that also provide yearly cash dividends after a certain accumulation period.
Interested to invest your SRS funds? Click here or contact us to know more about SRS-approved endowment plans.
You can withdraw your investments anytime, prior to maturity, with all three of these options, but may incur an early withdrawal penalty. However, these are the safest and lowest risk options for investors who just want security.
Pros: Security, Stability, and Certainty
Cons: Relatively Lower Returns
Suitable for: Investors who are cashing out money soon, risk averse, or want to complement their other higher risk investments
2. Medium Risks, Medium-High Returns – Unit Trusts, Investment Linked Plans, Index Funds and Exchange Traded Funds (ETFs), or Real Estate Investment Trusts (REITs)
If you are young, and would like to take on something more exciting than just guaranteed returns, you can consider investing in Unit Trusts, Investment Linked Plans, Index Funds, ETFs or REITs.
Investing in Unit Trusts, Investment Linked Plans, Index Funds or ETFs are like buying a stock basket with multiple stocks – it helps you reap the gains of stocks, but also diversify some of the risk that comes with buying individual companies directly. The difference between Unit Trusts and Index Funds or ETFs, is that Unit Trusts are actively managed by a fund manager, in return for a fee, while Index Funds and ETFs are passively managed. Index funds are also commonly tagged to a benchmark, such as the Straits Times Index (STI), which is the benchmark index of the Singapore stock market.
Meanwhile, Investment Linked Plans are investments which provides death benefits. Some plans such as Tokyo Marine’s #goElite Secure also protects you against volatile market trends, by locking-in the peak account value every monthiversary, to deliver maximum death benefit in the unfortunate event you meet your demise.
Fund managers are professionals who do research and due diligence to pick stocks that they believe have strong growth potential, and to sell stocks at the right timing to reap the gains. Expert and experienced fund managers aim to beat the market and usually provide higher than average returns. That’s why it’s important to invest in a good fund with experienced and competent fund managers to maximise your returns!
At InvestDIY, our Star Rating System takes the guesswork out of investing. All our funds are designed to diversify your portfolio, while providing growth opportunities, and are professionally managed by top global fund managers such as Black Rock, J.P. Morgan, PIMCO and more. Depending on your investment goals and risk profile, you can invest in investment grade securities or thematic funds, and earn up to 12.12% p.a. in 5 years.
Interested to invest your SRS funds in unit trusts? Click here or contact us to learn more about how you can maximise your SRS returns with unit trusts.
Meanwhile, REITs are companies that own and typically operate real estate, producing income via rental. These companies will often distribute their income back to their shareholders as dividends. Real estate owned by REITs can range from office buildings, hospitals, residential areas, hotels and shopping centres. In Singapore, where land is one of the most precious resources, REIT sounds like a great investment, right? Almost. This is because there seems to be a decline in rental yields due to the Covid-19 pandemic where employees work-from-home, and the rise of eCommerce.
In summary, these are the medium-risk options you can consider if you would like to earn more through your SRS investments options, while keeping your risk low.
Pros: Lower volatility, more diverse, potentially higher returns than Fixed Deposits, SSBs and Endowment Insurance Plans.
Cons: You may lose part of, or all of your capital.
Suitable for: Investors who are just starting out, have time to wait to sell their equities during the bull market, have medium risk appetite.
3. High Risk, High Returns (Not For The Faint Hearted!) – Blue Chip Shares
Blue Chip shares usually refer to equities of well-established and most probably financially stable organisations that have been operating for many years. You can use your SRS funds to purchase securities on the Singapore Stock Exchange (except American Depository Receipts).
You should always remember that just because a stock is “blue chip”, it is not infallible. Stocks can potentially give you higher returns compared to the above options, but there are much greater risks involved. You may be subjected to market fluctuations, where your retirement fund will depend entirely on the stocks that you purchased.
If you know what you are doing, that’s great. If not, are you mentally and financially ready to stake your retirement funds on stocks?
Pros: Potentially the highest returns
Cons: High volatility, may lose part of or all of your capital
Suitable for: Investors who have time or expertise to pick stocks, have high risk appetite, or young investors who won’t be withdrawing their SRS funds soon, but already have experience in picking stocks.
Regardless of what you choose to invest your SRS funds in, it is most important to invest based on thorough research, your risk appetite and your goals. It doesn’t matter what others are investing in, because only you know what your goals are, and how much risk you’re comfortable taking.
If you are still unsure how you can best utilise your SRS funds to make it work for you, feel free to contact us or Whatsapp us at +65 9151 5963 (Mon to Fri: 9am – 5pm).
This is for general information only and does not constitute financial advice. This advertisement has not been reviewed by the Monetary Authority of Singapore.