- Open a CDP account
- Set up your first brokerage account
- Fulfil criteria to invest in SIPs
Ticked all the checklist in our beginner’s guide on when to start investing and all prepared to make your first investment? Now hold your horses. Before you begin to invest, there are a few administrative things that you have to complete.
1. Open a CDP account
For anyone that is interested in investing in Singapore, you will need to first open a direct securities account with Central Depository Pte Ltd (CDP). CDP is a wholly-owned subsidiary of Singapore Exchange Ltd. CDP provides a range of services including securities accounts, central safekeeping services and administration of corporate actions (e.g. dividend, share split).
For those who are new to investing, it is easy to confuse your CDP account with your trading account. These two accounts are not to be confused as the same thing. A CDP account acts as a safe that safeguards all of the shares that you own. Once you have purchased shares of any Singapore listed company, it will be deposited in your CDP account for safekeeping.
How to open a CDP account?
There are two ways which you can open your own CDP account.
a. Online via SGX
To open your CDP account, you can choose to open online. SGX allows anyone to apply for a CDP account via their website. You simply have to fill in the application form, provide a photocopy of your NRIC and include a document to verify your address (Bank statement, CPF statement or income tax statement). Once you have all three documents, you have to mail it to CDP, which is located at The Metropolis Tower 2.
b. Let your broker set it up for you
The more common and convenient way to set up a CDP account is to do it via your broker. When you sign up for your first brokerage account, your chosen broker will offer to set up a CDP account for you. This saves you the hassle of completing a similar set of forms on the SGX website. Oh, and you do not have to worry that you need to pay the broker. It is free of charge.
2. Set up your first brokerage account
In order to buy and sell shares, you will need to set up a brokerage account. Unlike a CDP account, a brokerage account allows you to transact trades on the stock market.
a. Do it online or in person
To sign up for a brokerage account, you can either apply for a brokerage account online or drop by in person to submit the required documents (NRIC, bank statement and CPF statement).
b. Choosing a brokerage
To set up a brokerage account, you have the choice of choosing from are a total of 13 brokerage firms in Singapore (iFast, AmFraser, CIMB Securities, Citibank, DBS Vickers, RHB Securities, Maybank Kim Eng, Lim and Tan, Phillip Securities, OCBC Securities, SAXO Capital Markets, Standard Chartered and UOB KayHian).
i. Compare commission fees
Whenever you make a buy or sell trade, you will need to pay a commission fee to the broker that helped you execute the trade. Most brokers have a minimum commission fee of $25 for EACH buy or sell trade. Recently, some brokers (i.e. iFast, Standard Chartered, Philips Securities) have offered promotional minimum commission fees of $10 for EACH buy or sell trade to encourage investors with smaller capital to invest.
The main difference between the different commission fees is the custody of the shares. When you pay $10 commission fee for a trade, the share is being kept in custody by your broker. This is in contrast to the $25 commission fee trade where the share is being kept in your own CDP account.
For shares that are kept in custody by your broker, there is a chance (although minimal) of losing your shares if your broker goes bankrupt. Brokers might also charge additional fees to handle any dividends that are being paid to your shareholdings.
ii. Compare support for new investors
As new investors, you need to pick up as much knowledge about investing as possible. When considering which brokerage to choose from, the support provided to new investors can be included as consideration. Among the brokerages, OCBC and CIMB are two of the brokerages that provide support for youths (age 18-29), including commission rebates, investing insights and invitation to investment seminars.
3. Fulfil criteria to invest in SIPs
Once you have set up your CDP and brokerage account, the next step is to check whether you are able to invest in the investment product that you are interested in. Because of the complexity of certain investment products, MAS introduced the Specified Investment Products (SIPs) category to safeguard the interest of retail investors.
According to MAS, SIPs are complex financial products that have structures, features and risks that are more difficult to understand. SIPs include futures and all overseas-listed investment products. In order to trade these SIPs, you have to fulfil one of the three criteria: (i) diploma or higher qualification in finance related courses; (ii) investment experience of at least six transactions in SIPs in the last three years; (iii) work experience in finance-related fields. For those of us who do not meet the criteria, you will have to pass the customer account review (CAR) test via SGX website to trade in SIPs.