10 Nov STI ETF Monthly Investment Plans Comparison – Why POEMS Share Builder Plan is Preferred?
This year, OCBC and POSB have each launched a STI ETF monthly investment plan. POEMS have the equivalent Share Builder Plan eons ago. I think the financial industry is finally moving in the right directions. It is hard to beat the market index and many fund managers have failed. It is hence better to create index funds and related-products to the retail investors. It would be a much better deal.
These plans are largely similar except for one factor that distinguishes POEMS Share Builder Plan from the rest…
POEMS used to set a minimum investment of S$200 per month. However, the minimum has been lowered to S$100 per month to remain on par with OCBC and POSB.
Underlying STI ETF
There are two STI ETFs listed on SGX. SPDR ETF has more than 10 years of history while Nikko AM STI ETF is 4 years old. SPDR is based in US while Nikko AM is owned by DBS. There aren’t important differences between the two and investors do not need to fret about their choice.
Some of the differences are
- Lot size:
- SPDR STI ETF at 1,000 per lot
- Nikko AM STI ETF at 100 per lot
- Fund fees:
- SPDR STI ETF at 0.3% per year
- Nikko AM STI ETF at 0.39% per year
For those who are more investment-savvy, I discussed about tracking errors of STI ETFs previously.
Unlike POEMS and OCBC plans which allow you to redeem and sell part of your STI ETF holding, POSB only allow full redemption. In other words, if you have 5,000 Nikko AM STI ETF shares under the POSB plan, you have to redeem all 5,000 shares, either you sell all of them, or transfer the holdings to your CDP account*.
*Note: These monthly investment plans are all custodised accounts. This means that POEMS, OCBC and POSB will hold the shares under their companies, and not in your CDP account. You need to pay an additional fee to transfer the shares to your CDP account.
POSB charges a flat fee of 1%. It can be quite expensive if you invest a small sum each month under OCBC and POEMS since they have minimum charges. OCBC charges 0.3% or minimum $5. POEMS charges $6 for investment less than $1,000 per month. If you only invest $100 per month, your cost will be 6%! You need to invest at least $600 per month to be on par with POSB’s 1% charge.
STI ETF historically pays out about 3% dividends per year. POEMS is the only company that automatically reinvest the dividends into STI ETF in the following month. You have learned about compounding effect is important to attain wealth. Reinvesting dividends is one of those ways to take advantage of this effect. When you start a monthly investment plan, you aim to do it for at least 5 years. Yes, POEMS is relatively more expensive but the compounding effect will dwarf the costs over the years. OCBC and POSB do not reinvest the dividends but distribute cash to your designated bank account.
Let me make it easy for you to decide. If you want to invest less than $600 per month, go for POSB. If you want to invest more than $600 per month, go for POEMS.
I have built a model for POEMS Share Builder Plan investing in STI ETF on a monthly basis and you can check the performance.
The table below summarises the comparison between the plans: