Wednesday, October 30, 2013

Loophole in the Phillip System?

I think it's strange, but I might have just discovered a tiny loophole in the Phillip system.

For all their unit trusts, they charge a standard front end load of 0.75%, which is pretty much about the lowest loading fee charged by any of the fund distributors in Singapore.

Some of the banks charge as high as 5% if done in person, or with financial advice. Others charge less if done online and without assistance, or if you know you a Relationship Manager that is fine trimming down their own commission. Even then, I doubt that the rate that you can get is less than the 0.75% offered by Phillip.

I think one of the main reasons why they have this low fee is because of their low maintenance and no-frills website that they use. They also automatically re-invest dividends instead of paying them out. While that may seem like a bad deal to some, I've already highlighted that this is the surest way to defeat the greedy demons inside of us that will hinder the effect of compounding returns. So the lower fees and re-investing is actually to the long term investors advantage!

So enough with all the talk, what is this loophole then?

Well, I just realized that the fund switch fee is pretty much a flat standard 0.5%. That means that if you have any existing funds with Phillip, you can take a 0.5% haircut off that fund and transfer your holdings from one fund to another.

Hold on, wait a minute. You pay a 0.75% front load fee, and then you have to pay an additional 0.5% switch fee if you change fund. How that does that help in any way?

If you asked that question, then your mathematics pass and you can do investing yourself. Congrats! The real kicker here is that some funds are on promotion, and you pay 0% loading fee! So hold that thought...

While the 0% loading fee itself is a fantastic deal and is extended to quite a large number of bond funds, the loophole comes in if you purchase a 0% load fund, and switch to a fund without a promotion. That means you technically only pay 0.5% and you save a 0.25%.

Okay fine, come and blast me now. 0.25% is peanuts. In terms of the $1000 minimum investment, that's a paltry $2.50. But if you're see it like me, this small amount adds up for virtually no hard work at all!

Of course, this has yet to be tried, tested and proven. So tell you what, I'm going to test it out. I am going to stick my own money on the line just so that I (and maybe you) can save that 0.25% in the future. Why? Well, every small bit counts, and by doing this, you're going to see a 0.25% improvement in your portfolio. And what better way to encourage investing by seeing healthy green profits in your portfolio, eh?

I've purchased 2 lots in the UOB SGD fund, and I will be looking towards redeploying this funds in the near future to switch-in to either top-up or enter new funds. Firstly, the UOB SGD fund has 0% loading fee. Secondly, the fund to me feels rock solid. It's slow and steady, but by gosh, it is steady. It has yet to print me a figure that was below it's previous NAV. I may strongly consider this as a higher yielding "cash" haven, specifically to switch into funds with the flat 0.75% fee.

So much things to look forward to over the next few days, though my CFD account is blowing up, I think I'm more embracing the fact that I've written it off as happy gambling money to keep me busy, and not part of my assets anymore, haha. That doesn't mean I've given up trying to recoup my losses on it though! I am going to restrict myself to a tight restriction of only 1 pair a day. I keep losing focus, which is so bad for my bottom line.

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