3 Things to Know About Investing Your CPF Money in Shares

Credit: Simon Cunningham

The Central Provident Fund (CPF) is a compulsory savings scheme that requires Singaporeans and permanent residents to save 20% of their salary for those 55 years old and below. The employer is also required to top up an additional amount into the employee’s CPF account every month. This means that a substantial amount of your salary will be deposited into your CPF account each month.

Hence, knowing how best to maximise your CPF money can go a long way to helping you achieve your financial goals.

The CPF Ordinary Account returns 2.5% a year, while the Special Account returns 4% a year. On top of that, an extra 1% interest is applied for the first $60,000 in your combined accounts.

Besides letting your CPF account accrue interest, there are other ways that you can invest this money. Most Singaporeans know that they can buy a home with their CPF money. However, some are unaware of the option of buying shares with their CPF account.

As such, this article will focus on what you should know about how you can invest your CPF money in shares.

1. Eligibility

There are a few requirements before you can start investing your CPF money on stocks and they are:

  • Be 18 years old and above;
  • Not be a un-discharged bankrupt;
  • Have a minimum of $20,000 in your CPF Ordinary Account; and/or
  • Have more than $40,000 in your CPF Special Account.

2. Maximum amount you can invest

There are two methods to calculate how much you can invest. The investor can only invest the lower of these two calculations.

The first method is that you can invest up to 35% of your CPF savings. The second method is that you need a minimum of $20,000 left in your CPF Ordinary Account after investing. Let’s take the following example.

If you have $50,000 in your CPF account, you will be able to invest $17,500 using the first calculation method.

Using the second method, you will be able to invest $30,000, after deducting $20,000 from $50,000.

Hence, $17,500, being the lower of the two calculations, is the investable amount.

3. Eligible shares

There are five criteria that a stock must meet to be a CPF-approved share. To be clear, this approach does not make the stock a risk-free proposition. Here are the five criteria:

  • The company is incorporated in Singapore;
  • The company is listed on the Main Board of the local stock exchange as a primary listing or is a former SESDAQ share;
  • The shares are traded in Singapore dollars;
  • Agent banks are allowed by the company to appoint all CPF shareholders of the company proxies to attend and vote at meetings; and
  • The company must not be on the watch-list of the local stock exchange.

Currently, there are around 400 CPF-approved shares that an investor can choose from. The full list can be found here (click on “View All CPF Investment Scheme” once you are on the website).

The Foolish bottom line

Before investing your CPF money in shares, it is important that you know the risks involved and that you educate yourself on what is the best way for you to achieve your financial goals. You may also wish to read up on two articles I wrote where I discussed the pros and cons of investing your CPF money in shares.

Meanwhile, for more (free!) investing insights, sign up here for your FREE subscription to The Motley Fool's investing newsletter, Take Stock Singapore. It will teach you how you can grow your wealth in the years ahead.

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The information provided is for general information purposes only and is not intended to be personalised investment or financial advice. Motley Fool Singapore contributor Jeremy Chia doesn't own shares in any companies mentioned.