The launch of the OCBC Blue Chip Investment Plan (“the Plan”), a regular investment plan that allows retail investors to purchase Straits Times Index (STI) stocks for as little as S$100 a month. Investors can use cash or funds from SupplementaryRetirement Scheme (SRS) accounts to invest in one or more stocks from a selection of 19 Mainboard STI stocks and one STI Exchange Traded Fund (ETF). OCBC Bank also saves first-time investors the hassle of openingsecurities trading and Central Depository (CDP) accounts by buying the stocks on their behalf on a pre-determined date every month.
OCBC Media Release
What Blue Chips are available?
At the moment, OCBC is offering 20 counters to select from:- CapitaLand Limited
- CapitaMall Trust
- CapitaMalls Asia Limited
- ComfortDelGro Corporation Limited
- DBS Group Holdings Limited
- Global Logistic Properties Limited
- Keppel Corporation Limited
- Olam International Limited
- Oversea-Chinese Banking Corporation Limited
- Sembcorp Industries Limited
- SembCorp Marine Ltd
- Singapore Airlines Limited
- Singapore Exchange Limited
- Singapore Press Holdings Limited
- Singapore Technologies Engineering Limited
- Singapore Telecommunications Ltd
- Starhub Ltd
- United OVerseas Bank Limited
- Wilmar International Limited
- Nikko AM Singapore STI ETF
Out of the 20, I would personally consider 3 at this moment for my portfolio
1) CapitaLand - For reasons explained in my earlier post:
2) Wilmar - For cyclical play on palm oil and the price movements of the stock looking to hit $3.20 based on today's closing of $3.24. A good range to accumulate.
3) Nikko AM Singapore STI ETF - For consideration if I am too too busy to keep watch on the 2 above. The ETF allows the portfolio to be exposured to the STI components in one go. Allowing the best diversification in one counter.
POINTS TO NOTE: FEES and TERMS & CONDITIONS
Lets look at two Terms and Conditions laid out:
Using a table, it would be easier to explain how exactly this impacts the investor using the BCIP.
The table above shows 13 different scenarios of an Investor using the BCIP. Various combinations of monthly cash payments (Ranging from 100 to 900) and different Average Prices that a chosen Stock was executed at. This resulted in the amount of Shares being purchased for the Investor.
If we look at Scenario(S) 1 and 2 with Same Average Price of S$2.5315:
S1:
S$95 dollars (less S$5 fee) was used to purchase at Average Price S$2.5315, you would have gotten 38 Shares (After Rounding). Gaining an immediate gain of S$1.20 before any price movement based on his 95 dollars.
S2
S$595 dollars (less S$5 fee) was used to purchase at Average Price S$2.5315, you would have gotten 235 Shares (After Rounding). Gaining an immediate lost of S$0.10 as OCBC reserves the right to "accumulate and retain, for its own benefit, .." as per Term 8.8 above
Starting to see how the rounding of fractions can have an impact on the bottom line?
However, not only can the Actual monthly amount the you choose can affect an immediate gain/loss.
The Average Price used can also play a part as in Scenario 3 and 4 whereas the monthly layout of S$500 is the same and a slight different in Average Price can affect the immediate bottom line.
FEES
The main selling point of the BCIP is the minmium of S$100 a month to start your own blue chip portfolio. But is this advisable ?At $100 a month, it attracts a flat fee of $5.
When put into perspective; is actually 5% of your investment. Which means your counter must move at least 5% to breakeven with the Buy Commission.
(We have not even included the Sell Commission).
Lets find out what is the optimal monthly investment?
The ideal point in a mathematical sense would be ~$1667. However, due to the terms that the monthly amount to be in increments of $100, the Optimal area would be $1700 and above. $1600 coming in a close 2nd.
However, majority of young working adults/fresh grads - the target market - do not have $1700 to spare a month; after expenses, paying back study loans and bills.
Therefore the Real World Optimal Area to me would be somewhere between $400 (which will be a 1.25% fee proportion) to $900 (which will be a 0.63% fee proportion).
Conclusion
With the Minimum fee of $5 waived til 30 June 2014 and CNY promotion of Zero transaction fees for the first monthly purchase.This presents a good chance for new retail investors to get their feet wet.
Just remember to chose the counter that suits you best and stick to a reasonable monthly investment of $400 - $900 in the beginning. Feel free to increase as your income increases.
Let the investing begin :-)
OCBC BCIP T&C
OCBC BCIP COUNTER LIST
Accurate as of 22 Jan 2013.
