Offer cheaper choices in CPF Investment Scheme

NEWS that the government is reviewing the Central Provident Fund Investment Scheme (CPFIS) should come as no surprise, given declining participation in the scheme, along with poor returns.

As Deputy Prime Minister Tharman Shanmugaratnam noted on Tuesday, more than 80 per cent of those who used the CPFIS in the last decade would have been better off leaving their money in the Ordinary Account (OA), which earns 2.5 per cent a year; some 45 per cent of CPFIS users actually made losses over the period.

The poor performance of CPFIS can be explained partly through the fees paid to distributors and fund managers, which erode returns. Anecdotal evidence suggests 2-3 per cent is given upfront as sales charges when an investor buys into a fund. In addition, the investor pays expense ratios of 1.5-2 per cent a year. Fund managers complain that half their fees are given back to distributors as commissions as well, making the whole business rather unviable.