Srs buy shares

More than four years ago, when asked for my first contribution to this column, I wrote about a little-known scheme offering savings to Singaporeans who squirrelled away money into it.

Since then I have always made it a point around this time every year, just as Singaporeans are about to collect their year-end bonus, to write a piece on the savings programme known as the Supplementary Retirement Scheme SRS. By opening SRS accounts, if they have not already done so, and depositing part of their year-end bonus in them, Singaporeans stand to enjoy some savings on the taxes which they have to pay on their taxable income for that year.

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This is because, like CPF contributions, money put into the SRS account is tax-free, so every dollar put into the SRS reduces your chargeable income by a dollar. For me, promoting the SRS year after year has turned out to be a fruitful effort, as more and more Singaporeans open such accounts and start depositing money in them. Between the end of and last year, data furnished by the Finance Ministry shows that the number of SRS account holders had jumped by 73 per cent from 41, to 71, One of the gripes I raised in an earlier column was that the SRS banks had almost stopped promoting the scheme, despite the obvious benefits which their customers could get from the tax savings.

So it is heartening to find that in recent years, banks such as DBS and OCBC are taking out huge and colourful advertisements to draw Singaporeans' attention to the SRS. As the population ages, it is likely that the SRS will become even more popular as a programme for squirrelling away savings, given its attractive tax-savings feature.

But the MOF data also shows that while more SRS accounts are being opened, a huge number of the account holders are simply leaving the savings in these accounts as cash. In , cash made up only 22 per cent of the overall SRS investment pie.

But by the end of last year, it had expanded to 32 per cent of the SRS pie.

That is a pity. Bank deposits attract almost next-to-nothing in returns in the current low interest rate environment.

So, if a saver chooses to keep his money lying idle in the SRS account, the reward he enjoys will be confined only to the initial tax savings he gets from depositing it there in the first place. It leads to my next point: Many Singaporeans have used the money in their SRS accounts to invest in unit trusts and insurance products, but few of them are aware that the SRS funds can be used to invest in stocks listed on the Singapore Exchange.

Check any online broking site, and an investor will find that he has the option to pay for his stock purchases using cash, CPF or SRS.

It is as simple as that. My personal preference as a markets writer is to advise SRS account holders to invest their money in the stock market, as this has the potential to offer them the highest returns over the long run, if they pick their stocks carefully.

This is because the SRS is designed to encourage Singaporeans to save for their retirement needs, so any early withdrawal will attract a penalty fee of 5 per cent. The sum withdrawn is also considered part of the investor's taxable income that year. In my case, the discipline of having to keep the money for such a long period of time has forced me to develop a long-term view on all my investments — not just those I keep in my SRS account.

This forces me to take a critical look at each potential stock investment which I plan to make: Do I know the business of the company I am buying into? Do I like the management running it? Can I see myself holding the stock five to 10 years from now? Currently, the value of my stockholdings in the SRS account is roughly double the total sum of all my SRS contributions over the years.

I am sure that if others persevere as I do, they will find themselves having a tidy sum squirrelled away in the SRS account by the time they retire. BT INVEST A Personal Finance and Investment Arm of The Business Times. Market Snapshot STI 3, Buy stocks with your SRS savings Although more people are taking advantage of SRS to save on taxes, many leave their money lying idle 28 Oct Feed Back Return to the previous page.

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