Recently I have completed my first trade buying shares using CPF. My idea was to buy some divdend stocks like Reits with yields that are significantly higher than 2.5%, the yield of CPF ordinary account above the first $20,000. I feel that buying shares using CPF is not as straight forward as say buying unit trust. There are a number of things to consider such as stock limit, trading and settlement issues, what happens if there is a rights issue, etc. The relevant information is also not easy to find as it seems to be scattered everywhere, some with CPF, some with the CPF agent banks, and some with the brokerages. I have decided to compile and share what I have found out and gone through as follows:
Open a CPF Investment Account
If you do not already have a CPF Investment Account, you need to open one with one of the following CPFIS agent banks:
- DBS Bank
- OCBC Bank
- UOB Bank
Note that you can only maintain one CPF Investment Account at any one time. As a suggestion you should open the account with the bank in which you already have internet banking access, as it may allow you to view your CPF investment portfolio or transfer money from CPF investment account back to your CPF account online.
Link your CPF Investment Account to your Trading Account
You should have a CPF investment account no. after the investment account has been opened successfully. If you are applying for a new trading account with a brokerage, there should be a field in the application forms to fill up the CPF investment account no. This will link the CPF investment account no. to your trading account when it has been opened. If you already have a trading account, you can simply provide the CPF investment account no. to your broker for the link up. Depending on the brokerages, some will allow the link up simply by providing your trading account no. and CPF investment account no. via a call or even email.
Note that linking the CPF investment account to your trading account may take some time. You should check with your broker whether the linking has been done before you start buying shares using your CPF.
Check that you have sufficient CPF funds
Before you start buying shares using your CPF, you should check whether there is sufficient funds in your CPF Ordinary Account. You should take note of the following CPF rules related to CPF investment:
- From 1 May 2009, only monies in excess of $20,000 in your Ordinary Account and $30,000 in your Special Account can be invested.
- Up to 35% of investible savings can be invested in Shares, Property Funds (or real estate investment trusts) and Corporate Bonds.
You should always check the CPF website www.cpf.gov.sg for any updates in the rules for CPF investment.
It will be much easier to keep track of what is the available funds for investment if you have internet access to the CPF portal @ www.cpf.gov.sg:
- Logon to www.cpf.gov.sg
- Click on the "My Statement" link at the left panel
- You should see your account balances on top. Somewhere below you should see the section "Section C Net Amount Used & Amount Available". In the section, there is a part for "investment". The heading "Investment" is a link. Click on it for more CPF Investment reports.
- You should also click on the link "[Please read] Important information to note before investing your CPF savings!" for more information.
- In the "My Statement - Investment" page that appears, there is a link "I wish to view My CPF Investment Scheme (CPFIS) Stock and Gold Limits Computation". Click on this link.
- A report will show up which computes what is the available funds for investment. For stocks investment, you can look at "Step 2: How much can I invest in stocks & gold now?". You should see a statement like the following:
- You can invest $XX,XXX.XX in stocks, the lower of (A) or (C).
- So the above figure will be how much you can use to buy stocks. Note that the figure above may not include any outstanding transactions done very recently using your CPF ordinary account. You should also take note if you are planning to use your CPF ordinary account soon for other purposes like buying properties.
Trading and Settlement
Now how to buy and sell shares using CPF will very much depend on your brokerages. What I am describing here is based on the POEMS online trading. You should check your own brokerage website for details.
To buy shares using POEMS online trading, simply check on the CPF checkbox when placing your buy orders. Same goes for selling of shares. Note that not all counters will show the CPF checkbox as not all stocks are can be purchased using CPF. Following is a related extract from the POEMS FAQ:
"The counter must be a CPF trustee stock in order for you to be able to use your CPF OA funds to trade. You can identify CPF trustee stocks when you login to POEMS, click on STOCKS > Price. There will be a key symbol next to the counter name to indicate that it is a CPF trustee stock."
After buying the stocks, the settlement should be automatically done between the brokerage and CPF. You can also verify the transaction online using the CPF portal. In the latest transactions statement, there should be a record marked with the transaction code "INV", probably one day after you have purchased the stocks.
For selling of stocks, the proceeds will go to your CPF investment account first instead of directly to your CPF account. Following is an extracted FAQ in CPF website about this:
Q: How do I transfer the cash balance in my CPF Investment Account to my Ordinary Account?
A: You may do so at any time using your agent bank's facilities (e.g. ATMs or phone-banking facilities). You may also make the transfer over the counter at the bank. Your agent bank will also automatically transfer the cash balance held in your CPF Investment Account to your CPF Ordinary Account (at the end of the month) if your Investment Account has been inactive (i.e. if you have not made any investment transactions) for two consecutive months. If you have been unsuccessful in an IPO application, your agent bank will transfer the unused CPF for the IPO application to your Ordinary Account at the end of the month.
I think it is better to transfer the funds back to your CPF account asap rather than wait for two months as you may lose out in interest for the CPF account.
Rights Issue
What happens if there is a rights issue for the stock bought using CPF? This is not an unlikely event especially if you have used CPF to buy Reits. Following are some important things to take note:
- You cannot accept the rights through CDP or ATM, like what you do for cash investment.
- You can only accept the rights via your CPF agent bank. By right your agent bank should send you the relevant forms. If not, you should contact your agent bank asap as there is a deadline for acceptance of rights.
- You can only accept the rights with your CPF funds. If you do not have
sufficient CPF funds or the stock limit is breached (refer to above section "Check that you have sufficient CPF funds"), you should top-up your CPF account using cash through the agent bank.
Note that once you top-up your CPF account using cash, the process is irreversible, and the money will stay within your CPF funds. Following is an extracted FAQ in CPF website about this:
Q: Can I top-up my CPF Investment Account under CPFIS-OA with cash if I do not have sufficient CPF savings for investment?
A: No, cash top-ups are not allowed, except in the case of taking up entitlements or conversion of entitlements. You may top-up your CPF Investment Account through your agent bank if you have insufficient CPF savings or stock limit to subscribe for the entitlements or conversion. However, such cash top-ups are not withdrawable or refundable, even if your applications are unsuccessful.
The last part is especially important. Make sure you have the rights, be sure of the correct number of rights you have and the amount of shortfall in funds before topping up your CPF account with cash. Otherwise your cash will remain in your CPF account for no reason.
For subscription of excess rights using CPF funds, I am not absolutely sure whether it is allowed in general, but i do come across a few rights issue information or FAQ that says it is allowed. But I will probably not do it if I have insufficient CPF funds and need to top-up using cash, as if you fail to get the excess rights, your money will become part of your CPF account and will not be refunded as cash.
Trading of Rights
Following is an extract from the POEMS FAQ page pertaining to the buying of rights using CPF funds:
"For CPF Rights issue trade you can only sell off the rights or exercise it base on what is credited into the CPF Investment Scheme account, You will not be able to purchase it using CPF funds through the trading account."
I am not absolutely sure whether it is a general rule that you cannot buy rights using CPF funds as I am unable to find relevant info in the CPF website. But I do come across this restriction being quoted in a few rights issue information or FAQ. If you really want to buy rights using CPF, you may want to check with your brokerage.
Following is an extract from the POEMS FAQ page pertaining CPF Rights issue trade. Since buying of rights using CPF is not allowed, this should refers to selling of rights:
"To conduct CPF Rights issue trade, you would be required to conduct a cash trade then contact your trading representative within the same trading day to convert it to a CPF trade. If you have not provided your CPF Investment bank account details, please provide the details to your trading representative on the same trading day."
Once again you may want to check with your brokerage for the actual procedure.
I believe there are still some information that I have not covered. If you have any additional information to add on, feel free to make a comment.
