The Institute aims to build core financial capabilities across a broad spectrum of the Singapore population. As the IFLS is a full-time dedicated effort in financial education, it will be able to deliver financial education to the public in a regular and structured manner.

The idea for such an institute was actually mooted about three years ago by MAS. It certainly took a while for the idea to come to fruition but I think it is a great initiative!

The IFLS will build on MoneySENSE’s work on basic money management, financial planning, and personal investing. It will offer free talks and workshops to help consumers develop capabilities to make financial decisions that directly affect them and their families.

Initially, the programs hope to reach out to the middle and lower income working adults segment. This group is typically too busy with their families and their work to attend financial talks. Thus, IFLS will bring the talks to them in their work-place.

When the IFLS is fully operational, it will be able to conduct 220 lunch-time talks per year.

For a start, talks covering the following topics will be offered starting from October 2012:

• Making the Most of Your Money
• Financial Planning Begins Now
• Are You Borrowing Too Much?
• Do I Need Every Type of Insurance?
• Building Your Nest Egg
• Investment and Financial Products

Organisations and associations that are interested in bringing these programmes to their staff or members or the public can contact the Institute at 6870 8383 (phone) or [email protected] (email).

The website of the IFLS can be found at http://finlit.sg

To leave your comments, please go to : Launch of Institute for Financial Literacy

Following are some points from the session which covered on the basic types of life insurance and the considerations to be made when deciding which is more suitable for yourself.

The basic types of life insurance consists of two forms: Traditional types which includes Whole Life, Term and Endowment. The other type is Investment-linked Policy (ILP).

Traditional life policies are further divided into non-participating policy and participating policy. As the name suggests, non-participating policies do not participate in profits of the insurer’s life fund i.e. the insured is not entitled to bonus payment. Participating policies on the other hand participate in the profits in the insurer’s life fund where bonuses are not guaranteed. (Refer to the MoneySense guide on participating plans)

Whole life is a form of permanent insurance policy providing coverage for the entire life of the insured. Premiums can be paid throughout the insured’s life or payment for a limited period. (i.e 15, 20 or 25 years.) After this period of time, there is no need for further payment but you are covered for the whole of your life. The death benefit is paid out upon death/total and permanent disability whereby the policy would be terminated once the death benefit is paid out or upon cessation of the policy where there is a surrender value, whichever is earlier.

Term insurance is a form of temporary insurance where coverage is provided for a specified period of time. There is no surrender value as compared to whole life policy, in this scenario the insured is paying purely for the protection and there is no cash value for the policy.

Endowment is a form of temporary insurance providing coverage for a specified time period only (known as the policy term.) A maturity benefit would be paid upon maturity of the policy. Should the insured dies during policy term, then the death benefit will be paid.

Investment-linked insurance policy is a life insurance policy which provides both a combination of protection and investment. There are different plans that can cover for either the whole of life or a specified time period only.

Certain charges to take note of include Bid-Offer spread, fund management fees, insurance coverage charges, policy fees, surrender charges, premium holiday charges as well as fund switching fees. The value of ILP depends on the performance of your chosen funds and do not have attaching bonuses.

An ILP comes attached with certain risks:

• Policy value will fluctuates according to the performance of the underlying funds.
• Policy owner may be exposed to higher investment risks to achieve higher potential yield.
• Investment returns are not guaranteed
• Potential risk of losing capital invested
• Insurance coverage charges are not guaranteed
• Units may be insufficient to pay the insurance coverage charges if performance of underlying funds are very poor.

Thus, an ILP might not be suitable for someone with a short time horizon or low risk appetite. (Refer to the MoneySense guide on ILP)

Different policies cater to different individual needs. At the end of the day, you need to know your needs and objectives before you can decide what kinds of insurance plans are most suitable for you.

You might also want to refer to the MoneySense guide on life insurance.

To leave your comments, please go to : Life Policies including Investment-Linked Plans

Even before making any investments, we will typically need to decide how much money to spend or save and then whether to keep spare cash in a fixed deposit or to invest it.

David spoke about triangulating with three dimensions before making any investments:

• Know the products
• Know yourself
• Know the various strategies

There are plenty to questions to ask within these three dimensions including: How safe are the investments? How often should I review my investments?, etc

Not using these three dimensions might lead to sub-optimal results:

1. Know yourself and know the products but don’t know the strategies => lower returns
2. Know the products and know the strategies but don’t know yourself => mis-matched risks
3. Know yourself and know the strategies but don’t know the products => missed opportunities

Know Yourself

I would say the most important dimension is to know yourself as the other two functions can be outsourced if you do not know them.

Knowing yourself is a very important aspect of any investment, your own liquidity needs, financial objectives, risk appetite, risk budget, financial health as well as any other potential financial issues.

Knowing the difference between your risk appetite (how much risk you want to take) and your risk budget (how much risk you can actually take) is absolutely essential.

If you are engaging a financial adviser, then the “Financial Needs Analysis” is a process to help investors understand their financial situation and needs. Your needs usually changes at different stages of life, hence the FNA should be reviewed periodically.

Know Your Products

Three general factors can be used to categorize investment products:

• Risk level
• Investment horizon
• Complexity of the product.

Try to choose investments with a medium to long term view in mind.

David talked about two products that are more common – Unit trusts and structured deposits.

Features of unit trusts include the following:

• Investment picks and market timing are outsourced to investment professionals
• Sales charges can be high
• Active fund management fees can be high
• Past good performances does not guarantee future good performance
• Professional investors can underperform the benchmark
• Liquidation is not immediate

Investing in unit trusts can get slightly tricky. Fluctuation of the values of the unit trusts depends on the risk of the underlying assets. The more risky the underlying assets the higher the fluctuation. Returns are also not guaranteed. Should investors feel jittery about market outlook or need money and too many investors redeem their investments, fund performance can be affected.  Funds can also close down if their asset under management is too low.

Structured deposits usually provides higher returns than fixed deposits to investors due to embedded options. The high returns are generated from the premiums paid to investors for undertaking the risks of some events where they usually have certain market views when purchasing structured deposits. Several risks of structured deposits include:

• Investors may earn lower or no returns from such investments
• Counter party risks
• No government guarantee
• Once committed to a structured deposit, investors will not be able to liquidate the investments easily
• Loss of capital and returns might result upon early withdrawal
• Complicated terms

When it comes to investing, caveat emptor (Let the buyer beware)!

Overall, it’s a pretty interesting and humorous presentation so I would encourage you to have a look.

To leave your comments, please go to : Investment Risk Highlights and Three Important Dimensions of Investing

The purpose of the guide is to help you understand what unit trusts are and what you should consider before investing in them. It highlights the benefits and risks of investing in unit trusts, what you should look out for in the prospectus and other important information you should know to make sense of your unit trust investment.

You can download this 28-page guide here:

Making Sense of Unit Trusts

To leave your comments, please go to : Making Sense of Unit Trusts

Here’s a summary of her presentation.

There are three types of traditional deposits, namely: Transactional, Special Savings and Fixed/Time Deposits. The financial crisis in 2008 saw many of us asking the same question: How safe is my money?

For both traditional and structured deposits, you are exposed to the default risk of the bank.

For traditional deposits, your money is also protected by deposit insurance (up to $20,000 per individual) and fully covered by the Singapore Government Guarantee (till end of 2010). More information the deposit insurance scheme can be found on the Singapore Deposit Insurance Corporation website.

Structured deposits are issued by the bank and are not to be confused with traditional deposits. They offer protection of principal with potentially higher returns than traditional deposits but are not risk free. Your money is usually invested in 2 components – Bonds or money market instruments and also linked to exposure of different underlying assets/markets in order to have a potential of additional upside.

If the underlying assets do not perform as expected, you may receive just your principal upon maturity which mean you would be worse off compared to just leaving the money in a traditional deposits.

Features of structured deposits include the following:

• Tenors: Structured deposits have maturity periods lasting from a year up to 10 years. When investing, the main consideration you should consider is the length of time you are able to set aside for investing and whether the issuer has the option to redeem the deposit early.
• Principal protection
• Offer period: They are offered in tranches which has either a fixed offer period or are available til the tranche is fully subscribed.
• Investment returns: It is important to note the maximum/minimum returns of the product, how returns are linked to the underlying asset/markets and the worse case scenario.
• Other features: Option for early withdrawal and the various costs involved.

Benefits of Structured deposits include the following:

• Diversify risks and enhance yields
• Offers potentially higher returns
• Exposure to assets/markets not easily accessible by retail investors
• Protection of principal

However, they are accompanied by various risks:

• Liquidity risks: Investing funds in structured deposits usually ties up your funds for a period of time. An early withdrawal may result in the loss of part of your returns and/or principal.
• Issuer risks: Are you comfortable with the credit standing of the bank offering these structured deposits?
• Market risks: Structured deposits are linked to underlying assets/markets, hence their performance are determined by the performance of these underlyings.
• Reinvestment risks: Where the issuer is allowed to exercise the early redemption option, you may be exposed to the risk of having to invest your money at a lower rate compared to when you first invested and the maximum returns received may also be capped.

Whether an individual chooses a structured or traditional deposit depends on his/her risk profile and preferences. Traditional as well as structured deposits both have their roles to play as key parts of a well-diversified portfolio.

To leave your comments, please go to : Difference Between Traditional and Structured Deposits