Pushing up your banding when applying for an IPO

When applying for an IPO, many investors may want to apply for a higher banding as the actual number of units allocated is typically lesser than what you applied for. I have talked about this in greater depth in a previous post.

How to read an IPO balloting ratio table

So how can we push up our banding when applying for the IPO?

My simple strategy is to "borrow soldiers". In this case, the "soldiers" mean money.  One of my rules in investing is never to borrow money for investing. So why am I contradicting myself here?

By "borrow soldiers", I mean to "borrow" from your own CPF monies. If you have an CPF investment account, you can invest up to 35% of your ordinary account (OA). During the balloting of the units for the IPO, the amount you applied is based on your cash plus cpf. This strategy only applies to IPO which allows you to invest your CPF as well.

For example, if you have enough cash to apply for 11 lots. This alone will qualify you under a typical band of 10-19 lots. However, if you apply along with an additional 10 lots via CPF, you will fall under a higher band of 20-49 lots.

Where will the units be credited upon successful allocation?

Based on the results I have observed so far, it appears that cash has priority over CPF. This means that any units will go to your cash (CDP) account first. Any remaining units will go to your CPF investment account.

Conclusion

One can temporarily push up to a different banding when applying for an IPO. However, there is a chance where you may be allocated units to your CPF investment account as well. Investors should evaluate if they should use this strategy under the worst case scenario where they are allocated 100% of what was being applied. Any additional shares from a new counter held in the CPF investment account incur quarterly charges with the agent bank.

For more info on investing with CPF:

http://madstranger.blogspot.sg/search/label/investing%20with%20CPF

Investing with your CPF - Part 2

This is a continuation of from an earlier post:
Investing with your CPF - Part 1


How do you start to invest with your CPF-OA?
You need to open a CPF investment scheme (CPF-IS) account with one of the agent banks.
DBS: http://www.dbs.com.sg/personal/others/cpfinvestment/default.page?
OCBC: http://www.ocbc.com.sg/personal-banking/Investments/cpf-investment-account.html
UOB: http://www.uob.com.sg/personal/investments/financial/uob_cpf_investment_account.html

Note that you need to
1) Be at least 18 years old
2) Not an undischrged bankrupt
3) Must not have an existing cpf-is acount with any bank
4) have at least 20k in your CPF OA before you can invest.


What are the charges like?
As you may have suspected by now, since the investments go though an agent bank in additon to your regular broker, there are additional charges tied to it.

The full list can be viewed on CPF website:
http://ask-us.cpf.gov.sg/efa/cs/idcplg?IdcService=GET_FILE&RevisionSelectionMethod=LatestReleased&dDocName=EFA_000087&Rendition=Primary&allowInterrupt=1&noSaveAs=1

I shall highlight the more important ones here:
Shares:
1) normal brokerage charges applies
2) transaction fee between $2 and $2.50 per 1000 units/shares (up to max of $20-$25)
3) service charge of $2 per counter per quarter.

Unit trust
1) regular sales charges applies
2) between $2 and $2.50 per 1000 units (up to max of $20-$25)

Based on these charges, I will suggest
1) DO NOT buy penny stocks using your CPF-OA. The one time transaction fee will eat into your overall costs
2) try not to over diversify on your CPF-OA stocks. Each counter will eat up $2 per quarter.
3) calculate your overall return carefully, taking all these charges into consideration. You need to beat the 2.5% to make it worthwhile to invest your CPF-OA

Investing with your CPF - Part 1

With rising costs and high inflation rates, one may start to wonder if it is worthwhile to invest using your CPF. As there are too much information regarding investing with your CPF, I will be breaking down this topic to a few parts.

Some quick numbers:
Interest earned on CPF ordinary account (OA): 2.5%
Interest earned on CPF special account (SA): 4%
** An additional 1% interest will continue to be paid on the first $60,000 of a member’s combined balances, with up to $20,000 from the Ordinary Account (OA).

Inflation rate is about 4.8% year-on-year for the 1st 9 months of year 2012
(source: http://www.channelnewsasia.com/stories/singaporebusinessnews/view/1237226/1/.html)

Some quick facts:
1) What can you invest in?

 

2) How much can you invest from your OA and SA?
Only monies in excess of $20,000 in your Ordinary Account and $40,000 in your Special Account can be invested. In addition to this, do take note of the additional limits if you want to invest in shares or gold. For shares, up to 35% of investible savings can be invested. For gold, up to 10% of investible savings can be invested.

This investible savings will take into account of amount already withdrawn for investments. For example, if you have 40k in your CPF-OA and have withdrawn 10k for investments earlier, your total investible savings is 50k. 35% of this is $17500. This is less than the 30k which is "in excess of the $20k in your OA". Thus, you will only be able to invest another $7500 since 10k is already invested.

You can check your shares and gold limit in your CPF statement via the CPF website. The amount are updated on the 11th of every month, based on the balances at the end of the previous month. The update will be on the 12th if 10th is a Sunday/Public Holiday.