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Understanding Specified Investment Products (SIPs)

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November 01, 2018 | 5 min. read

Find out what Specified Investment Products (SIPs) are and how you get certified to invest in them.

Key takeaways

  • There are certain more complex retail investment products that are classified as SIPs.
  • If you want to buy and sell SIPs listed on an exchange, you need to go through a Customer Account Review (CAR) before opening an account.
  • If you want to buy and sell SIPs that are not listed on an exchange, you similarly need to get through a Customer Knowledge Assessment (CKA).
  • This is to assess that investors have the knowledge or experience to assess an SIP's complex features before they invest.

What are SIPs?

Some products are more complex than others, and have terms and features that may be difficult to understand.

Specified Investment Products (SIPs) are generally products that contain derivatives which can expose you to more factors that may affect your investment. It may be difficult to understand how the derivative can affect the performance of the product.

Other SIP products may be difficult to understand because their returns or losses are determined by complicated formulas.

To help retail investors, the Monetary Authority of Singapore has classified certain investments as SIPs, and requires financial institutions to assess the investor's investment knowledge and experience before selling SIPs to the investor. This is to assess that investors have the relevant knowledge and experience to understand the features and risks associated with investing in such products, before they invest.

Types of SIPs

There are generally two types of SIPs - those that are listed on an exchange and those that are unlisted.

Examples of listed SIPs Examples of unlisted SIPs
  • Structured warrants
  • Futures
  • Daily leveraged certificates
  • Structured notes (e.g equity-linked structured notes, credit-linked structured notes)
  • Certain unit trusts
  • Certain investment-linked life insurance policies

To find out more on each type of SIP, download our guides:

Tip

On the SGX website, SIPs are marked with an "@" prefix.

What is required

Financial institutions are required to formally assess your investment knowledge and experience before selling SIPs to you. This is to ensure that you have the relevant knowledge and experience to understand the features and risks associated with investing in such products. It is not the same as the suitability assessment which considers your risk appetite.

You will need to go through a Customer Account Review (CAR) for listed SIPs, or a Customer Knowledge Assessment (CKA) for unlisted SIPs.

Customer Account Review (CAR)

Before you can open an account to trade listed SIPs, the financial institution must conduct a CAR.

The financial institution will request information on your educational qualifications, investment experience, and work experience. They will use it to assess whether you meet at least one of the following criteria:

  • Have the relevant educational qualifications
  • Have a professional finance-related qualification
  • Have a minimum of 3 consecutive years of relevant working experience in the past 10 years
  • Have made at least 6 transactions in listed SIPs in the last 3 years

You can find out the outcome of the CAR from the financial institution.

How long it is valid

The outcome of your CAR will expire after 3 years if you have transacted in a listed SIP only once or not at all during that period. If so, the financial institution will be required to conduct a new CAR before you can transact in any listed SIP.

Customer Knowledge Assessment (CKA)

If you wish to transact in an unlisted SIP, the financial institution must conduct a CKA.

The financial institution will request information on your educational qualifications, investment experience, and work experience. They will use it to assess whether you meet at least one of the following criteria:

  • Have the relevant educational qualifications.
  • Have a professional finance-related qualification.
  • Have a minimum of 3 consecutive years of relevant working experience in the past 10 years.
  • Have made at least 6 transactions in unlisted SIPs in the last 3 years. Transactions include buying unlisted SIPs or topping up your investment in an unlisted SIP.

You can find out the outcome of the CKA from the financial institution.

Even if you meet the CKA criteria, remember that you can always ask the financial institution for advice on whether an unlisted SIP is suitable for you.

How long it is valid

The outcome of your CKA is only valid for a year.

After the one year, the financial institution will be required to conduct a fresh CKA regardless of the number of transactions in unlisted SIPs you have made in that period, before you can transact in an unlisted SIP. This is to ensure that your knowledge and experience continue to be relevant.

Trading both listed and unlisted SIPs

If you want to buy both listed and unlisted SIPs, you will be asked to go through both a CAR and a CKA.

If you don't meet the CKA and CAR criteria

You can still proceed to transact in SIPs if you do not meet the CKA or CAR criteria. However, you should be aware of the consequences of proceeding with the transaction, and know that it is your responsibility to ensure that you understand any capital markets products that you intend to invest in.

The financial institution will be required to put in place certain safeguards if you intend to proceed despite the outcome of your CKA and CAR. For example, it might require that you receive advice on whether the product is suitable for you, or explain to you the general features and risks associated with investing in SIPs.

Checklist

Before you invest: Key things to look out for

Before you purchase an investment product or open an account to trade, consider the following:

Is the financial institution regulated?

Check if the financial institution you are dealing with is regulated by MAS and if it is authorised to provide financial advice.

Read: Financial advice: Who you could be dealing with

Is the investment product suitable for you?

Ask questions and understand the product recommended to you, and why it is suitable for you. Consider the following:

  • How can the product help you achieve your investment objective? Will it increase or reduce the risk in your portfolio? What are the benefits and risks?
  • How well do you understand the risks? If things go wrong, what is the maximum you can lose? Can you withstand the loss?
  • How much time do you need to monitor the product’s performance? Do you have the time?
  • Take time to shop around for, and compare other products that offer similar benefits and risks.

Are there any warning signs?

Look out for warnings:

  • Watch for warnings that indicate that a product may be complex or that you may lose some or your entire investment amount. Do not buy the product if you do not fully understand the product or are not comfortable with the risks.
  • Be careful of verbal promises and guarantees of high returns. Remember that if something sounds too good to be true, it probably is. Understand the risk-reward characteristics of that particular product. Ask the financial institution to refer you to the relevant clauses in the product documents that describe the verbal representations made.

Remember, you can always walk away

If you have any doubts, you have every right to decide not to purchase a product.

  • Even though financial institutions need to have a reasonable basis when recommending an investment product to you, you too need to consider the advice and recommendation carefully. Do not be induced by gifts or discounts, or be pressured to make a purchase decision.
  • Say "No" if you do not fully understand the product or disagree with the advice provided. Walk away if you have doubts about the product or your dealings with a financial institution or individuals representing the financial institution.

Note: If you decide not to take up the offer of financial advice or choose to invest in a product that the financial institution did not recommend to you, you will have to take responsibility for ensuring that product is suitable for you.

Learn more: SGX’s Online Education Programme on SIPs

Last updated on November 05, 2018