RETAIL investors no longer have to run the gauntlet just to invest in simple investment funds.
Following strong market feedback that earlier versions of the Specified Investment Products (SIP) regime had been overly broad, the Monetary Authority of Singapore (MAS) has tweaked its rules to exclude simple funds from the often cumbersome safeguards required to invest in more complex products.
In a bid to encourage investments in exchange traded funds (ETFs), Singapore Exchange (SGX) will also waive ETF clearing fees from June 1 to Dec 31, 2015.
MAS said that it "has taken on board industry feedback that funds which make limited use of derivatives are relatively less complex and should be made more accessible to retail investors". "These are funds which invest only in simple products such as shares or gold, but may use derivatives for efficient portfolio management including the hedging of risks."
Under the previous rules, products such as gold exchange traded funds and funds that invested in a particular country were treated the same way as leveraged products or those that tracked synthetic benchmarks. Under the SIP framework, investors who wanted to buy those products had to be assessed by their financial institutions for their ability to understand those products. A lack of competency or experience in understanding those products would require additional safeguards to be put in place before the investment could be allowed.
But the new rules, which took effect on Wednesday, carved out exemptions from the SIP requirements for funds that trade in gold as well as those that use derivatives only for hedging or efficient portfolio management purposes.
Right out of the gate, State Street's SPDR Gold ETF was converted to the "excluded investment product" (EIP) status to take advantage of the change.
SGX expects up to 12 more ETFs to convert to EIP status, which would take the total number of exempt ETFs on the exchange to 20.
It is understood that those 20 ETFs would account for about 80 per cent of the assets under management among the 87 ETFs listed on SGX.
"We're more than happy to support this industrywide initiative to promote awareness of ETFs as a smart retail investment product," said SGX head of retail investors Lynn Gaspar, "and have developed retail investor friendly information and programmes for investors to learn more about how ETFs can improve their returns and diversify away risk."
The Securities Investors Association of Singapore (SIAS) urged brokers to support the adoption of ETFs by providing research and by cutting commissions for ETF trades, and for fund providers to reclassify their funds as EIPs whenever possible.
"The initiative by SGX to waive the clearing fee for ETF trades is also welcome," SIAS president David Gerald said. "Nevertheless, more can still be done. Brokers play a big role in helping investors choose the right investment by providing information."
Aberdeen Asset Management Asia's Nicholas Hadow said that his firm, which does not provide ETFs, would be looking at which of its existing funds can be converted.
"It's a move in the right direction, giving investors a broader choice," he said. "This is a recognition that just because it's called an ETF and wrapped in that fashion doesn't mean it's as complicated as it sounds."
Wong Sui Jau, regional research director of iFast Financial, which runs the Fundsupermart.com unit trust distribution website, welcomed the change. But he said that retail investors may still need to go through customer knowledge assessment processes until distributors are ready to distinguish between exempt and non-exempt products.
"Sometimes it's a lot easier for the IT system to treat everything as the same," Mr Wong said. "There will still be certain ETFs that's still under the SIP, still certain unit trusts under the SIP. From our point of view, it's better to sell on the conservative side and make sure everybody's getting the correct advice. At the worst, all we are guilty of is being overly careful."