I85PREP
⌘ K
CFP Singapore study materials
CFP Singapore study resources

CFP Singapore: Module 3 - Investment Planning

CFP Singapore · Work through your exam, one topic at a time.

All guide sections

Module 3 - Investment Planning

Module 3 - Investment Planning

Module 3 tests asset class behaviour, return and risk measurement, portfolio construction, product and regulatory knowledge, and the CPF and SRS wrappers that shape a Singapore client's portfolio. Numerical questions on risk-adjusted return and portfolio risk are common.

Returns and risk

  • Cash, bonds, equities, property and alternatives differ in expected return, liquidity and volatility.
  • Geometric (compound) return is always at or below arithmetic return; the gap widens with volatility.
  • Total return = income + capital change. Distinguish nominal from real.
  • Risk measures: standard deviation for total risk, beta for systematic risk, duration and credit spread for bonds.

Portfolio construction

  • Diversification works through low correlation, not through the number of holdings.
  • The efficient frontier shows the best expected return for each level of risk; adding a low-correlation asset can cut risk without cutting return.
  • Sharpe ratio = (portfolio return − risk-free rate) / standard deviation; Treynor uses beta; alpha is return beyond benchmark-adjusted expectation.
  • Active versus passive: costs compound against the client, so net-of-fee comparison is the only fair one.

Singapore product and regulatory map

  • Securities and Futures Act: prospectus requirements for offers; MAS Code on Collective Investment Schemes governs unit trusts; dealing and advising need a CMS licence or FAA authorisation.
  • CPF Investment Scheme: OA and SA monies may be invested above retention sums, with SA restricted to lower-risk products.
  • SRS: contributions attract tax relief within the annual cap for citizens and PRs, withdrawals from statutory retirement age are 50% taxable, and early withdrawal carries a 5% penalty plus full taxation.
  • Tax: no capital gains tax and no estate duty in Singapore; one-tier corporate dividends; deposit interest from approved banks is exempt for individuals.

Worked example

A 60/40 portfolio: equities expected 8% with standard deviation 18%, bonds expected 3% with standard deviation 6%, correlation 0.2. Expected return = 0.6(8) + 0.4(3) = 6.0%. Variance = 0.36(324) + 0.16(36) + 2(0.6)(0.4)(0.2)(18)(6) = 116.64 + 5.76 + 10.37 = 132.77, so standard deviation is about 11.5%. With a 2% risk-free rate, Sharpe = (6 − 2) / 11.5 = 0.35. Note the portfolio volatility of 11.5% is well below the weighted-average 13.2% - that gap is the diversification benefit.

Traps that cost marks

  • Treating a fund's recent three-year return as its expected return.
  • Using beta as a measure of total risk.
  • Assuming SRS withdrawals are wholly tax-free.
  • Forgetting CPFIS retention sums or assuming SA money can buy equities.
  • Believing accredited-investor status removes the suitability duty - it does not.