If you have the cash but find that the current Singapore dollar fixed deposit rates at local banks are low, what can you do to achieve a better return?
If your investment objective is wealth preservation and investment returns are to cover inflation, what are the alternatives available?
Take the case of an investor whose time horizon for investment is 5 years. The choices available:
1. Place the money in fixed deposit/time deposit at annual interest of 1.25% per annum (indicative interest rate of a bank in Singapore for 5-year tenor)
2. Buy Singapore Government Bond (SGS bond) with yield to maturity of 1.42% per annum. (e.g. NX04100F maturity 1July 2014)
3. Buy a Single Premium Insurance Plan from an insurance company
The Single Premium Insurance Plan is not an Investment-Linked Policy (ILP). ILP invests the premium received from policy holders in specific financial instruments, e.g. Singapore equities. The investment returns are based on the value of the particular Investment-Linked Fund over time.
The Single Premium Insurance Plan however earns its returns from the insurance company investing its Life Participating Fund (through the annual bonus declared by the insurance company). This is a life insurance policy with payment of a single premium upfront. You get the benefits of investment returns as well as the insurance protection on your life. It covers death of Life insured and Total and Permanent Disability (TPD).
I was introduced to such a plan recently, the NTUC Income Growth Plan.
With a single premium of $50,000 and a term of 5 years, for a male aged 40, the maturity benefits after 5 years are:
– Guaranteed maturity is $52,579 (1.011% per annum)
– Non-guaranteed maturity could be $58,024 (3.021% per annum)*
* The projected maturity benefits are based on a level of bonus rates, deemed supportable given that the Life Participating Fund earns an average 5.25% p.a. in the future. Bonus rates are non-guaranteed and benefits payable will depend on the future performance of the Life Participating Fund.
In other words, you will get at least the maturity payout of $52,579 after 5 years which yields 1.011% per annum. If the insurance company performed well on investing its Life Participating Fund, the maturity payout could be $58,024 which is a 3.021% per annum investment yield.
This is an example from one insurance company. Readers can shop around from other insurance companies and should seek independent professional advice.
The risk one must consider is the financial standing of the particular insurance company and their investment track record of investing the Life Participating Fund. The actual bonus declared from the Life Participating Fund in the future may be lower than that projected now.
Written on 6/27/2009 6:06 PM
Copyright © 2009, the author known as LKT in Singapore.
The material presented is intended to be general and written in layman’s language as much as it is possible. The author shall not be liable for any direct or consequential loss arising from any use of material written. Please seek professional advice from your financial advisor or financial institutions on material written covering financial matters.