The Start Of My SRS Investing Journey

In short, I have recently created a new SRS account and made my first contribution.

The Supplementary Retirement Scheme (SRS) is for individuals to voluntarily save for their retirement and it complements the existing mandatory Central Provident Fund (CPF) scheme. Although SRS is mainly for retirement planning, the main attraction of SRS is that contributions are eligible for tax relief. There is a limit one can contribute every year though. For Singapore Citizens, the maximum you can contribute is $15,300 every year.

You can make penalty-free withdrawals from your SRS account over ten years after the statutory retirement age that was prevailing at the time of your first SRS contribution. Only 50% of the withdrawals from SRS are taxable at retirement. If you make a withdrawal before the statutory retirement age, a 5% penalty for premature withdrawal will be imposed and 100% of the sum withdrawn will be subject to tax. The current statutory retirement age is 62 and will be raised to 65 by 2030.

The main reason why I am only starting my SRS account now is that I will be hitting a new income tax bracket for this year assessment and partially for retirement planning. This means I would be paying a lot more for my income tax next year, but at the same time I am glad that my salary has increased over the years. Therefore, in order to reduce the amount of tax I have to pay, I decided to start making contribution to SRS.

Starting an SRS account takes only a minute with your existing bank online. I am using DBS so I created an account with them and made a contribution. There is also an ongoing promotion where you can get $50 for new users with contribution of at least $10,000. The next thing to do is to link your brokerage account to your new SRS account so that you can starting investing using SRS funds. I am using DBS Vickers and linking the accounts take around 2 working days. You can choose any banks and brokerage firm which you are more familiar with.

One thing to note is that idle SRS funds in your account only earns 0.05% interest rate, so it important that the funds are invested. SRS funds can be invested into the following.

• Bonds
• Singapore Government Securities (SGS)/Singapore Savings Bonds (SSB)
• Fixed Deposits
• Foreign Currency Fixed Deposits
• Shares
• Single Premium Insurance
• Unit Trusts

For me, I chose to invest all my SRS funds into ETF. I eliminated most of the others due to lower returns and higher cost. The only remaining investment was shares which fits my risk appetite. As to why only ETF was shortlisted is because you would want to avoid corporate action such as rights issue or preferential offering, which requires capital injection. For SRS, you do not have the freedom of capital injection as there is a limit of  $15,300 contribution you can make. If you do not have sufficient funds in your SRS account at the point of time, you will have give up the opportunity for the rights issue or preferential offering.

Having said all that, I decided to invest all my SRS funds into Nikko AM SGD Investment Grade Corporate Bond ETF this year. SRS investing is for long-term and I will be contributing again toward the end of next year. I will probably choose another ETF but that is something for me to decide next year.    

Disclaimer: This post is not a recommendation or call to buy. This post is not sponsored by any of the products mentioned. 

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