[SINGAPORE] The Central Provident Fund (CPF) Board has moved to lower the cost of investing under the CPF Investment Scheme (CPFIS) by reducing the limits on the total expense ratio (TER) for unit trusts and investment-linked insurance products by 0.2 to 0.3 percentage points.
Under the changes, higher risk funds that are invested in equities will have their TER caps go down from the current 1.95 per cent to 1.75 per cent. TER caps for funds invested in money market products, considered to be of lower risk, will be cut by almost half, to 0.35 per cent.
The new TER caps will kick in from Oct 1, 2014, for new funds under the CPFIS. Changes to existing funds under the CPFIS will take effect from Jan 1, 2016.
TER is the ongoing costs of operating a fund expressed as a percentage of the fund's average net asset value. The costs include investment management fees, trustee fees, and audit fees.
Funds that do not comply with the new TER caps will not be allowed to take in new CPF monies.
CPF members who have already invested in funds which do not meet the new TER caps will not be required to redeem their investments, said the CPF Board. It noted that if investors want to switch to other CPFIS funds, they can do so free of charge within a stipulated time.
But industry players noted that the changes meant fewer choices for member investors.
Khoo Kah Siang, president of the Life Insurance Association Singapore, noted that the adjustments would mean that funds will need to be even more cost-efficient. "Across the board, we may see a shorter list of funds based on the adjusted criteria set for unit trusts and investment-linked insurance products under the CPFIS."
Albert Tse, head of intermediary distribution, Schroders Singapore, said that investors are bound to benefit from a cost perspective, but he noted that if there are fewer CPFIS-included funds available, there would be fewer options to choose from.
"We will review our CPFIS funds whose expense ratios are above these new requirements, and see if we can work on trying to reduce their TERs further," said Mr Tse.
The CPF Board has rolled out measures since 2006 to improve the quality of funds and lower the cost of investing. The last tweak was in 2012, where it capped wrap fees for CPFIS investments at one per cent per annum.