Thursday, October 17, 2013

Hidden Cost of Blue Chip Investment Plan

Some time back, I wrote about comparing OCBC Blue Chip Investment Plan and POSB Invest Saver and came to the conclusion that OCBC Blue Chip Investment Plan is better for my investment pattern. With this in mind, I have decided to test out a small amount by performing some purchase on the BCIP.

Fast forward to now, I just received my first statement from my Blue Chip Investment Plan and was baffled by the calculation in the statement. I have indicated to the bank that I wanted to purchase $200 worth of Nikkon AM Singapore STI ETF each month. In the statement, it was written that it had purchased 60 units for me at $3.3 per unit. This is fine as it amounts to $198. Thereafter, the transaction fee is 0.3% of the gross investment amount, as the current promotion removes the $5 minimum fees. This amounts to $0.60 for $200 of monthly investment. So all in, the total cost to me should be $198.60, but there was no refund of the remaining amount to my bank account.

With this, I have decided to comb through the terms and conditions again to see if I can discover the reason behind this and was very surprise to find the below clause at
http://www.ocbc.com.sg/personal-banking/Investments/bcip-terms-and-conditions.pdf

8.8 Fractional Amounts
OCBC reserves the right to accumulate and retain, for its own benefit, any and all fractional amounts of the aggregated Gross Investment Amounts collected from Customers each calendar month.

This means that the bank has the rights to keep any remainder value that is not enough to buy 1 unit of the indicated share. This amount can be substantial if the value of the share is large. Imagine that you are investing $100 monthly under BCIP buying UOB shares and the price for UOB shares is at about $22.20. You will only be able to buy 4 shares at a total of $88.80. After deducing the transaction cost of $0.30, there will be a residue of $10.90. Since the bank has the right to keep any amount that is insufficient to buy a unit of share, they can keep up to $10.90. This pushes up your transaction cost to about 11% of the invested amount. This is a HUGE HIDDEN COST that is hiding somewhere in the clause and not explained fully under the FAQ.

With this, I can only say do your homework properly and read through the terms and conditions carefully before purchasing any financial products. Caveat Emptor!




Updates on 29 Aug 2014
OCBC has made some revision to their terms and conditions governing BCIP and has changed the way the cost are calculated. You can read more about it from this post.

7 comments:

  1. thanks for ur sharing and it is not worthwhile for this.

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  2. Just found this: http://forums.hardwarezone.com.sg/80526091-post66.html

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    Replies
    1. Hi, the information from this thread is not correct. If you look at the FAQ on BCIP under point 11, at
      http://www.ocbc.com.sg/personal-banking/Investments/bcip-faqs.pdf, they did state that the shares will be rounded up or down to the nearest whole number and will not issue fractional shares.

      How is the quantity of shares I am allocated determined?
      The quantity of shares you are allocated is calculated by taking the investment amount you have
      indicated (less fees), divided by the average purchase price.
      The quantity will be rounded to the nearest whole number. If rounded up, there will be no
      additional charges. If rounded down, we will not credit any residual monies to you.

      Delete
  3. In actual fact, the residual will be consolidated with your next monthly installment to purchase shares

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    Replies
    1. Nope, I am very sure that this is not the case, as I got rounded down for a few months already

      Delete
  4. This comment has been removed by the author.

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  5. http://www.ocbc.com/personal-banking/investments/bcip-faqs.pdf- point 12

    ReplyDelete