Wednesday, March 10, 2010

Make sure of these first

Ready to put your money into a financial product? Here are 12 questions you should ask yourself before signing on the dotted line:

1 What is my investment objective? For example, is it to grow the funds for my retirement or for my children's education? How much funds do I need to do this, and when do I need the amount back as cash?

2 How much can I afford to invest, after setting aside funds for daily needs and savings to provide for emergencies? Do I intend to invest in one single sum or fixed sums? Will the investment sum be paid out on a regular basis (for example, monthly, quarterly or annually)?
3 How much return on investment do I need - after taking into account the effects of inflation - to meet my investment objective?

4 What is my risk profile? The financial adviser should have a tool to assess each customer's risk profile. To do your own check, try out the Risk Tolerance questionnaire at

5 Am I comfortable with the level of risk that comes with the product I am considering? How much losses am I prepared to incur? What are the potential losses in the worst-case scenario for the product I am considering?

6 Does the product meet my investment objective and needs? Which benefits are guaranteed and which are not?

7 What is the potential return offered? Is it realistic? Be careful of verbal promises and guarantees of high returns, say, anything above bank deposit rates. Make it a point to understand what is guaranteed and what is not, and to insist on a written confirmation from the adviser on any guaranteed returns or benefits.

8 When are the proceeds payable? Can I afford to stay invested for that duration? Do I need the proceeds earlier?

9 Will I be using my Central Provident Fund (CPF) money to invest? If so, how does the return offered by the product compare with interest rates earned by my different CPF accounts?

Remember that money in the CPF Ordinary Account and CPF Special Account earns a minimum interest of 2.5 per cent and 4 per cent per annum respectively. They are both guaranteed and risk-free.

10 Have I read and understood all the information, including the prospectus/fact sheet/benefit illustration and product summary, contracts, warnings, exclusions and disclaimers, terms and conditions, relating to the product I am considering?

11 Are the financial firm that the adviser represents and the provider of the product I am considering regulated by the Monetary Authority of Singapore (MAS)? A list of financial institutions regulated by MAS is available in the Financial Institutions Directory at

12 Are there alternative products that offer similar benefits and risks to those of the product I am considering? How does it compare with these alternatives? Finally, compare key areas like the scope of benefits, risk levels and total costs.

Source: MoneySENSE

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