You can invest in the STI ETF in one of three ways. In this section, I’ll go over the details so you can pick the best alternative for your financial goals.
Buy through a brokerage, like any other stock
Any brokerage account that allows you access to the SGX market can be used to invest in the STI ETF.
The STI ETF units will be delivered to your Central Depository (CDP) account by all brokers that are SGX trading members.
In Singapore, the market rate for brokerage commission is 0.28 percent, with a minimum of S$25. This does not include SGX fees or GST. The total cost, including fees and GST, is usually around S$28. You must purchase complete lot sizes, with one lot equaling ten pieces.
It might not be worth it to invest a little sum of money through these brokerages since the % cost is too high:
- If you buy one lot of STI ETF for S$30, you’ll still have to pay a fee of S$28, or nearly 100% of the purchase price!
Your commissions may be reduced if you choose a discount broker like Tiger Brokers or moomoo.
SPDR STI ETF vs Nikko AM STI ETF
The disadvantage of buying the STI ETF directly from your broker is that it is a one-time transaction. An alternate technique for investors who want to dollar cost average their STI ETF investment is to:
Invest Through Monthly Investment Plans
You can dollar cost average the STI ETF instead of guessing if the stock market is overvalued or undervalued, which most investors do all the time.
This means that if you set aside a predetermined amount of investment cash, such as $100 per month, you can gradually invest in the STI ETF.
This is especially important for people who have recently graduated from college and do not yet have the funds to begin investing. When the STI ETF’s price falls, you buy more of it, and when it rises, you buy less. You would accumulate enough shares over time to make your profits noteworthy.
The table below compares five providers that offer this monthly investing plan for the STI ETF.
STI ETF Regular Savings Plan (RSP) Comparison
With the exception of FSMOne, which allows you to start with just $50 per month, other organizations require a minimum commitment of S$100 per month.
POEMS offers only the SPDR STI ETF, whilst OCBC and POSB offer the Nikko AM STI ETF. Maybank Both SPDR and Nikko AM STI ETFs are available from Kim Eng and FSMOne.
POEMS charges a monthly fee of $6, which adds up to a significant amount in percentage terms if you merely invest S$100 per month. The fee will be a whopping 6%! However, if you invest more than $600, you will benefit from economies of scale, lowering your percentage cost.
At a minimum of $5, OCBC is not significantly less expensive. And if you exceed this minimum cost by making a larger monthly commitment, your cost can only go as low as 0.3 percent.
The ideal alternative for a modest investor would be POSB, which costs a flat 1% regardless of the amount invested.
Maybank Kim Eng, on the other hand, imposes a flat 1% fee for amounts less than S$1,000 per month.
POEMS is the only company that reinvests dividends in the STI ETF each month. You’ve understood the value of compounding effects in accumulating money. One approach to take advantage of this benefit is to reinvest dividends. When you begin a monthly investment plan, you want to stick with it for at least five years.
Yes, POEMS is more expensive initially, but the compounding impact will outweigh the expenditures over time.
OCBC, POSB, and Maybank are some of the most well-known banks in Singapore. The dividends are not reinvested by Kim Eng and FSMOne; instead, they are distributed in cash to your selected bank account. Keep in mind that there may be a fee for handling dividends.
You can redeem and sell a portion of your STI ETF investment at POEMS, POSB, OCBC, Maybank Kim Eng, and FSMOne.
Because the methods provided by the companies differ, you must refer to them. You should be able to transfer the units to your CDP account* rather than selling them for cash.
Maybank and POEMS Kim Eng would levy the current brokerage costs as a stock brokerage firm. You should be able to avoid the minimum expenses because you have amassed a significant number of shares over time.
As a result, the 0.28 percent brokerage fee would be marginally less than OCBC’s 0.3 percent selling fee.
When you sell, FSMOne charges a minimum of $10 or up to 0.08 percent of the transaction amount.
Note that each of these monthly investing plans is a custodial account. This means that the shares will be held by POEMS, OCBC, POSB, Maybank Kim Eng, and FSMOne, rather than in your CDP account. To transfer the shares to your CDP account, you must pay an extra charge.
Use CPF To Invest In STI ETF
It’s one of four ETFs that the CPF Investment Scheme allows you to invest in (CPFIS). You must first open a CPFIS scheme account with one of the local banks and link it to your brokerage account in order to do so.
Buying the STI ETF using CPF funds is the same as buying it with cash; you only need to specify on your brokerage platform that you are paying for the shares with CPF.
After the first S$20,000, you can invest all of your CPF Ordinary Account funds in STI ETF.
Of course, you must be aware that the STI ETF’s value may fluctuate owing to market volatility.
As a result, before investing in a STI ETF, you must be willing to accept substantial drawdowns.
Is the STI ETF a dividend payer?
Stocks in Singapore’s Straits Times Index (STI) are regarded for paying a respectable dividend. The STI’s dividend yield is 3.60 percent as of November 30, 2021. Other indexes, such as the Hang Seng Index (HSI) in Hong Kong and the S&P 500 index in the United States, pay only 2.53 percent and 1.35 percent (as of 14 December 2021), respectively.
While the dividends paid by STI are appealing, they only represent half (or less) of the picture. This is because we aren’t looking at the index’s growth, or total returns, which include price appreciation. Again, the HSI and S&P 500 have increased 21.66 percent and 17.66 percent, respectively, during the last five years, compared to the STI’s 4.7 percent total return.
Investors Who Benefit From Dividend Investing
There are various ways we can employ to develop our portfolio when we begin our investing adventure. Dividend investment is a lucrative and vital way to create income for many people.
Individuals in retirement or partial retirement, for example, may require monthly income to cover their living expenditures. Others pursuing FIRE (Financial Independence, Retire Early) may wish to consider diversifying their assets to include income.
Another way to look about income investing is that only well-established corporations with stable cash flows can afford to pay out regular dividends. As a result, when market downturns occur, such businesses may be well positioned to weather the storm.
However, because of their nature, such businesses may not be at the growth stage of their development. This is one reason why STI businesses’ total returns may lag behind those of the Hang Seng Index or the S&P 500 Index.
Even The STI ETFs Do Not Pay The Same Dividend Yield
While the STI pays a 3.6 percent dividend yield, this does not guarantee that we would earn the same income if we invest in a STI ETF. This is because we must invest in either the SPDR STI ETF or the Nikko AM STI ETF, which are the two STI exchange-traded funds (ETFs). The dividend we receive will be different and should be slightly lower due to additional fees and tracking issues.
The distribution yield of the SPDR STI ETF, for example, is 2.61 percent (as at 14 December 2021). While Nikko AM STI ETF does not explicitly indicate this, it should be rather close.
Also see: SPDR STI ETF vs. Nikko AM STI ETF: What’s The Difference Between These Two SGX-Listed STI ETFs?
Stocks On The STI Pay Out Different Dividend Yields
The Straits Times Index (STI) is comprised of 30 of Singapore’s largest and most liquid stocks. As previously said, such businesses often have robust cash flows and can pay out regular dividends, although they may not be high-growth. In addition, the STI includes seven REITs, all of which are known for paying out reasonable payments on a regular basis.
It should also be self-evident that each of the STI’s 30 constituents will pay a distinct distribution yield. Below is a list of the dividends paid by the various stocks on the STI:
*Unless otherwise noted, dividend yield is based on SGX Stock Screener data.
** CapitalandInvest is a new company that has yet to declare its first dividend.
Best-Yield STI Stocks
The five best yielding STI equities, as shown in the table below, are mostly REITs. This isn’t surprising, given REITs’ proclivity for paying out high dividends. They easily outperform the STI’s overall rate of 3.6 percent.
The remaining STI stocks, with the exception of Frasers Logistics & Commercial Trust, all saw their prices fall. DairyFarm International, in reality, has lost roughly a third of its worth. This is a cautionary lesson about not diversifying our investments, and it stands in stark contrast to the STI’s year-to-date total return of 10.4 percent (as at 30 November 2021).
Also see: A Complete Guide To Investing In Singapore’s Straits Times Index (STI) ETFs
How long must you keep an ETF to receive a dividend?
Dividends come in various forms. These dividends are paid on stock held by the ETF for more than 60 days during the 121-day period that begins 60 days before the ex-dividend date and ends 60 days after the ex-dividend date.
Is the Nikko AM STI ETF a dividend payer?
The SPDR STI ETF returned 28.54 percent on an annualized basis over the past year (as at Sep 2021). The SPDR STI ETF has achieved an annualized return of 4.83 percent over the last five years.
The Nikko AM STI ETF had an annualized return of -8.99 percent during the past year (as at Nov 2020). The Nikko AM STI ETF has returned 3.02 percent annually over the last five years.
The Straits Times Index, on the other hand, had a 1-year return of -8.26% and a 5-year annualised return of 3.57 percent.
As you can see, both STI ETFs delivered a little smaller return than the benchmark STI. The Nikko AM STI ETF outperformed the SPDR STI ETF over the course of a year, while the SPDR STI ETF outperformed the Nikko AM STI ETF over the course of five years. Nonetheless, the differences between the two are not significant.
#5 Expense Ratio
The total expense ratio (TER) determines how percent of a fund’s assets are utilized for operations, including administrative and other costs. Typically, fund management costs make up the majority of a fund’s expense ratio. It goes without saying that the lower the expense ratio, the better for investors.
The SPDR STI ETF and the Nikko AM STI ETF both have a 0.3 percent annual cost ratio.
Despite the fact that both STI ETFs charge the same fee, SPDR receives more money due to its higher asset under management (AUM).
#6 Tracking Error
Performing worse than the market, even if we ignore management costs, is always frowned upon. However, outperforming the index by a substantial margin is not regarded as a good thing for ETFs. This is because its job is to as precisely as possible duplicate market results.
Tracking error is the difference in market returns that cannot be replicated. The SPDR STI ETF has a 1-year rolling tracking error of 0.1863 percent (as of September 2021), whereas the Nikko AM STI ETF has a 3-year annualised tracking error of 0.15 percent (as at Sep 2021).
The tracking error of the Nikko AM STI ETF appears to be slightly smaller. The two STI ETFs, however, report it in different ways. The SPDR STI ETF has a rolling tracking error of one year, while the Nikko AM STI ETF has a three-year annualised tracking error.
#7 Dividend
Dividends are frequently paid out by the stocks that make up the Straits Times Index (STI). In fact, Singapore stocks are regarded for paying some of Asia’s highest dividends. These dividends will be paid to the corresponding ETF, which will then distribute them to its shareholders.
Both the SPDR STI ETF and the Nikko AM STI ETF have a semi-annual dividend payout policy. This implies that when ETFs receive dividends from their assets, they are not paid out immediately. Instead, both STI ETFs keep the dividends and distribute them on a regular basis.
The SPDR STI ETF has a dividend yield of 2.52 percent, while the Nikko AM STI ETF has a dividend yield of 3.20 percent, according to the SGX ETF Screener.
Also see: How To Build A Dividend Income Portfolio In Singapore To Replace Your Wage
Why The STI ETF Makes A Logical Investment For Many
Beginners and experienced investors both can benefit from the STI ETF.
It provides a safe option for new investors to get started, even if they lack prior investing knowledge or experience. We also don’t have to keep a close eye on our assets and may pursue a passive investing strategy because our portfolio is instantly diversified with Singapore’s 30 strongest stocks. Of course, we may utilize this as a stepping stone to learning more about investing and eventually allocating a portion of our portfolio to individual equities in Singapore and beyond.
Indexes are also evaluated and updated on a regular basis, and any changes to the index will be reproduced by our fund managers. Fund management fees are often significantly lower than actively managed funds because fund managers are simply copying index adjustments.
It can be a terrific complementary passive investment technique for experienced investors to diversify our risk while taking on riskier investments in the market.
Is it worthwhile to invest in the STI ETF?
The SPDR STI ETF (SGX: ES3) and the Nikko AM Singapore STI ETF are both inexpensive and simple to invest in (SGX: G3B). Investing in the STI ETF can be a good idea for a variety of reasons. All of the STI companies are blue-chip, which means they’re well-known, well-established, and well-protected.
Key differentiating point: Better performance over the years
Compared to Nikko AM STI ETF, SPDR STI ETF has demonstrated to have greater returns for all three performance comparison points (1 year, 3 years, and 5 years). Even when the market crashed in March 2020, SPDR STI ETF’s one-year performance was better than Nikko AM STI ETF’s.
How to buy SPDR STI ETF?
With your brokerage account, you can buy the SPDR STI ETF directly from the market. This puts the decision-making process in your hands; you choose when and how often you want to buy the ETF.
You can also invest in the SPDR STI ETF on a monthly basis using the following sites.
- POEMS Share Builders Plan (SBP): With just S$100 per month, you can get started. There are almost 40 different counters to pick from in addition to the SPDR STI ETF. A fee of S$6 will be charged if you have fewer than two counters. If you have a POEMS brokerage account, you can also set up a recurring plan to acquire the SPDR STI ETF on a monthly basis at the current account brokerage prices.
- FSMOne Regular Savings Plan: A regular savings plan with FSMOne can be started with just S$50 each month. FSMOne gives you the most options, allowing you to choose between the Nikko AM STI ETF and the SPDR STI ETF.
When do ETF dividends get paid?
Dividend-paying exchange-traded funds (ETFs) are becoming increasingly popular, particularly among investors seeking high yields and greater portfolio stability. Most ETFs, like stocks and many mutual funds, pay dividends quarterly—every three months. There are, however, ETFs that promise monthly dividend yields.
Monthly dividends can make managing financial flows and budgeting easier by providing a predictable income source. Furthermore, if the monthly dividends are reinvested, these products provide higher overall returns.
How are dividends from REIT ETFs taxed?
How are dividends from REIT ETFs taxed? After the 20% qualifying business income deduction is applied to those distributions, most REIT ETF dividends will be taxed at your regular income tax rate. Some REIT ETF earnings may be subject to capital gains tax, which will be reported on Form 1099-DIV.
How can you tell if dividends have been paid?
To begin, determine whether you are entitled for dividends. You must have purchased the stocks before the ex-date to be eligible for the dividends (you will be eligible for dividends if you have sold the stocks on ex-date as well).
You will not be entitled for the dividend if you bought the stocks on or after the ex-date.
By following the methods outlined here, you may track the dividends of your stock holdings on Console in Kite web and Kite app.
If you are entitled to dividends and have not received them by the dividend payment date, you must notify the registrar of the company.
The company registrar’s contact information may be found on the NSE website under the ‘Company Directory’ item and on the BSE website under the ‘Corp Information’ tab.
What is the number of ETFs in STI?
You have made the decision to begin investing in the Straits Times Index (STI).
But you don’t have enough money to buy individual equities, and you realize that exactly replicating the index will require a lot of work.
- Consider index investing as a viable option for your investment strategy and time horizon.
- Learn how to invest in Singapore’s top 30 firms with the STI ETF.
- Recognize the distinctions between Dollar Cost Averaging (DCA) and Lump Sum Investing.
You now have the option of choosing between two STI Exchange-Traded Funds (ETFs):