Wednesday, October 22, 2008

Phillip Share Builders Plan (PSBP)

Finally I decided to sign up with Phillip Share Builders Plan (PSBP) after giving much thought. At first I disagree with such plan as I found it too costly. In fact, it may actually be more cost effective depending on the amount of investment that you set aside every month.

Fees for Phillip Share Builders Plan

The picture above shows the cost structure of PSBP as taken from Phillip Capital website. The important costs that you need to take note of are the handling fees and dividend charges. The corporate charges can be ignored, as they are rarely carried out. Then the other charges can be avoided totally. You can request for an electronic statement to save on the hard copy statement fees.

The reason why I said it could be cost effective is because you are charged only on the handling fees when buying any number of counters. Unlike buying of normal shares, you will be charged a fee on every buy for every counter. Through PSBP and assuming if you do Dollar Cost Average (DCA) into SGX and DBS counters with $5000 every month, you will only be charged at 0.2% of the investment amount rather than a separate commission for every purchases. Of course the plan may get more expensive if the investment amount gets smaller. Then unit share market may be more suitable for smaller investment amount.

Cost is not the main reason why I choose to sign up with PSBP. I have always wanted to keep shares of Singapore bluechips ever since I started investing. At that time I did not buy, as most of them require big amount of capital to begin with. Looking at hindsight I am glad I did not buy, as valuations were high also.

Now prices of bluechips have fallen significantly and are trading at cheaper valuations compared previously. Neither do I wish to wait for prices to reach unrealistic levels nor do I want to miss the opportunity of getting bluechip shares after market starts to recover again. Therefore I decided to pick SGX, Keppel Corp and Capitaland with a monthly investment amount and DCA into them. Furthermore I believe the market will remain volatile for the next few months. With a monthly DCA, I just want to get an average share price of these counters.

The other advantage of the plan is the option to reinvest the dividends received. Reinvestment of dividends may not be practical or cheap if I choose to do if myself. Through PSBP, I can choose to reinvest the dividends automatically with just a small fee. In this way, I can grow my number of shares at a much faster rate.

The disadvantage of this plan is that I will end up with odd number of shares at the end of my DCA period. I don’t think that will be a problem as I don’t intend to sell them so soon. Also I may need to pay double administrative fees of $10.70 to Phillip Capital and CDP if I choose to transfer every counter to my own CDP GSA. Alternatively I can call my trading representative from Phillip Capital to sell them away directly.

In conclusion, PSBP is a good plan for long term investors who wish to do regular savings with a selection of bluechip stocks. In my opinion, there is no other better time to start DCA other than uncertain times like now.

14 comments:

Ryan "Buffet" Lim said...

Hi Mike.

I have some concerns regarding Capitaland as I too studied the stock and found it unsettling for some figures. Here is my info:

- severe fluctuating of cash flow over the past 5 years. This is worrying in light of the current situation where cash is king.

- BVPS fluctuated severely too. Not sure why. Perhaps it is the industry

- EPS shows a severely decline of -13.3% last year in 2007. Not sure if they will do better this year.

- Dividend payout ratio is rather low at no more than 23% of net earnings

Given that there are better stocks out there, I gave it a miss. Hope this info is useful for your future decision making.

Cheers!

Mike Dirnt said...

Hi Ryan,

frankly speaking, i did not do an analysis of capitaland. as to the inconsistent earnings, it is probably due to cyclical nature of property counters

but for definite sure,
1) i know capitaland is already trading at very low valuation. the stock has fallen quite a lot from the previous peak
2) this company had proven that they had withstand multiple bear markets. so im confident they will rise again when boom time comes
3) i dont have a property counter in my portfolio yet. so i decided to DCA into this one as im not sure of the bottom

Jonathan said...

Hi, if I invest $100 monthly, the handling fees will be about $6.5 which is very high at ard 7% of my investment. Do you recommend that I use PSBP if i wan to invest like around $300 per month?

Mike Dirnt said...

hi jonathan,

the minimum per counter is $200. i dont think its a small amount if you consider $6.5/$300 is about 2%. thats about the same sales charge as an equity unit trust

just make sure you accumulate more shares before transferring out. at least your cost will be lower

Jonathan said...

Thanks for your reply. I am interested in this plan. may i know how much did u invest in PSBP per month? are there extra charges besides the handling fees

Mike Dirnt said...

Jonathan i definitely set aside more than $300 into this plan because i can afford it. if you cant, dont be too concern about it. the small cost may mean nothing if you are willing to hold for long term as the appreciation in share price and collection of dividends may cover that costs.

all the costs are already summarised in the table :)

Jonathan said...

Hmm. thanks from what i can see, if total investment more than $1000, handling charge increases to 10.70! that means if i invest 300 per month, after 4 months my handling charge jumps to 10.70. That's about 3.6% of my monthly investment. that a very high charge considering unit trust charges is at 2% or less

Mike Dirnt said...

i wonder how do you do your calculation? try to understand carefully.

the fee is based on your monthly investment not on your total investment

Anonymous said...

Hi,

I have several questions regarding Phillip Share Builders Plan (PSBP). Hope some people can help. :)

1. Will buying from the odd lot share market result in a higher price than the board lot share market?
Is the "day low" and "day high" prices in your latest blog update referring to odd lot or board lot market? Sorry newbie in this.

2. Is it possible to manually stop PSBP for certain months (or decrease the monthly investment amount to $0), without requiring to pay the monthly handling fee? E.g. Jan $1000 for 2 counters ($6.42 handling fee), Feb stop/$0 ($0 handling fee), Mar stop/$0 ($0 handling fee), April $1000 for 2 counters ($6.42 handling fee), etc.

3. What is "dividend charges"? When is it applied? Is it applied when reinvesting, or applied as long as there is dividend? Specifically, will there be charges if you choose to receive the dividend payment in cash?

4. Continuing from 3, is this how it works (automatic reinvestment option)? E.g. you receive $100 dividend for SPH counter. They charge $1.07, and so $98.93 is added to the subsequent month's investment amount for the SPH counter.

5. Is "dividend charges" applied to each counter's dividends? E.g. you have 2 counters and both have $100 dividends each on the same month, hence both will deduct $1.07 each.

Thats it for now. I believe there'll be further questions when there're answers to the current ones.

Thanks!
momo

Mike Dirnt said...

Hi Momo,

1) the buy/sell prices for odd lot market in general will be slightly higher than the board lot market since not many people transact there. but in some cases, you may get a discount than the board lot prices, if people are desperate to sell their odd lot. so it can depend on the market condition and liquidity of the stock too

the day low and high prices are referring to the board lot prices

2) you can stop the PSBP for a max of 3 months i think. so if no transaction, then no handling fees

3) as long you receive dividends from your PSBP stocks, you will be charged. You can request to transfer the dividends to your cash management account

4) Yes

5) Yes

Mike Dirnt said...

sorry for the question (1), in general the buy/sell spread is quite huge in the unit share market. ie you need to pay higher price to buy in unit share market than in board lot market

Anonymous said...

Hi Mike,

Thank you for your replies. I have one more question.

For the average price that you see in the e-statement (or the average price that you posted on your blog), does it take into account all the costs (e.g. investment amount + handling fee), or is it only the average of the buy prices without taking into account the handling fee?

To rephrase, is the average price in the statement (as well as the average price that you posted on your blog) the average share buy price or the average cost (which takes into account the handling fee and other charges)?

Thanks!
momo

Mike Dirnt said...

Momo,

i did not bother the average price at poems account or statement. i believe those are prices inclusive of trasaction fees.

the price that i update in this blog reflects the average price after taking into account of all fees inclusive of CDP and poems transfer charges and dividends reinvested.

James said...

Hi Mike,

I intend to terminate the 2 poor-performing ILPs I bought for my daughters' education and re-invest the money into an ETF via PSBP. After cashing out the policies, I will have about $13.5k and can put aside $300 per month to buy the ETF.

- In your opinion, is this a good time to buy STI ETF?

- If I use PSBP, I can only buy STI ETF and not DBS STI ETF 100 right?

- which would you recommend I buy if my objective is to hold for the long term ie about 10 years, STI ETF or DBS STI ETF 100?

Thanks and I greatly appreciate your advice.