No one can guarantee that investments will always be profitable, or that the types of investments permitted under the CPF Investment Scheme will always earn profit. CPF members have to decide for themselves how to invest their savings, and what risks to accept, and exercise prudence and care in investing their CPF savings to ensure their financial well-being after retirement. If they are not confident of investing on their own, they should leave their money in their CPF account which earns interest and is risk-free.

Any opinion or statement in this Frequently Asked Questions (FAQs) is made on a general basis and is not to be relied on by the reader as investment advice. The CPF Board does not give any consideration to nor has it made any investigation of the investment objectives, financial situation or particular needs of the reader, any specific person or any group of persons. Accordingly, no warranty whatsoever is given and no liability whatsoever is accepted for any loss arising whether directly or indirectly as a result of the reader, any person or any group of persons acting on any information, opinion or statement expressed in this FAQs.

This FAQs can help you: Learn about the three basic types of investments: cash, bonds and stocks; Understand what a unit trust is; Understand what an ILP is; Understand what an ETF is; Understand the risks associated with different investments; Review the balance between investment risk and return that you are willing to tolerate; Understand how diversification helps you limit risk; Understand how various investments fit into the Risk Classification System; and Use the Risk Classification System to help you determine which investments may be appropriate for your investment circumstances.

1.	Overview
2.	What is a unit trust ? What is an ILP? What is an ETF?
3.	The basics of investing
4.	Risk-return tradeoff
5.	How do you decide how to invest?
6.	How much risk are you willing to take?
7.	How do you know if you are investing for the short term or long term?
8.	Diversification can help limit your risk
9.	Stick with your strategy
10.	Now you are ready to invest...
11.	How does the risk classification system work?
12.	Need more information?

1.	Overview
	The CENTRAL PROVIDENT FUND (CPF) offers a comprehensive range of schemes and services. The CPF INVESTMENT SCHEME (CPFIS) gives you the opportunity to invest your CPF savings in a wide range of investments to enhance your retirement nest egg. Investment objectives and goals differ from person to person. The CPFIS reflects this by making different types of investments available to CPF members. Under the CPFIS, you can invest your CPF savings in shares and loan stocks, unit trusts, government bonds, statutory board bonds, bank deposits, fund management accounts, endowment insurance policies, investment-linked insurance policies (ILPs), exchange traded funds (ETFs) and gold. INTRODUCING A RISK CLASSIFICATION SYSTEM FOR THE CPFIS This Risk Classification System is to help you: Understand the level and types of risk associated with the various types of permitted investments; and Identify the investments which are appropriate to your particular investment circumstances.
2.	What is a unit trust? What is an ILP? What is an ETF?
	Under the CPFIS, you can invest in various unit trusts. A unit trust is an investment fund managed by a professional investment manager. It consists of investments in one or more of the three basic asset classes — cash, bonds and stocks. The combination of assets for each unit trust is determined by the investment objective of the particular unit trust. For information on the investment objectives of the various unit trusts, please contact the relevant investment managers. They will be able to provide you with the prospectus and fact sheet for the unit trust. Unit trusts offer investors a cost-efficient way to diversify or spread their investments. As the savings of individual investors are pooled into a unit trust, the unit trust can buy a greater variety of investments than is possible for an individual investor, thus making greater diversification possible. Unit trusts may also allow you to access markets and investments which you may not be able to access through direct personal investment. Under the CPFIS, you can also invest in various ILPs. An ILP is made up of an insurance component coupled with an investment fund managed by a professional fund manager. Insurers usually set up two or more sub-funds for each ILP with differing investment objectives to suit the risk appetite of different types of policyholders. These underlying ILP sub-funds are similar to unit trusts. The allocation of premiums across these sub-funds may be fixed by the insurer or decided by the policyholder, depending on the structure of the ILP. The advantage of an ILP is that it effectively combines investments in a unit trust with purchase of insurance coverage. This is also its disadvantage. An investor might prefer a more flexible combination of insurance coverage and unit trust investment that is not offered by any of the ILPs included under CPFIS. Under the CPFIS, you can also invest in ETFs. An ETF is an investment fund that is listed and traded on an Exchange. It is designed to track an index of markets and sectors or a fixed basket of stocks. It is bought and sold in the same way stocks are bought and sold on the Exchange. ETFs offer investors the benefit of diversification as investors need only to buy an ETF share to gain exposure to a diversified portfolio of domestic or international stocks. ETFs have low annual management fees and investors may buy or sell ETFs at prevailing market prices during trading hours in the Exchange. Investors are also able to see what stocks they are buying as ETFs offer transparency in its composition. Investors can track the ETF's performance by monitoring the particular underlying index's performance.
3.	The basics of investing
	Most investments fall into one of three basic asset classes — cash equivalent , bonds and stocks (also called shares or equities). CASH EQUIVALENT Cash equivalent (e.g., fixed deposit) investments are usually investments which have low risk of losing value but offer relatively low potential returns. Cash equivalents are typically used to hold money that will be needed in the near future or to hold assets temporarily while considering how to invest the assets for the long term. Examples of cash equivalent investments include fixed deposits and certain types of money market instruments, guaranteed investment contracts and stable value funds. BONDS Bonds, often referred to as fixed income securities or debt securities, are loans to a corporation or government to finance its operations. A bond represents the corporation’s or government’s promise to repay at a specified date (at maturity) the amount borrowed from investors. The bond generally earns interest. Bonds also increase or decrease in value based on market conditions. Examples of bonds include government bonds and corporate bonds. STOCKS (SHARES OR EQUITIES) Stocks represent ownership in a corporation. If you own stock in the XYZ Corporation, you are part owner of that company. Stocks may provide income in the form of dividends. Stock investments increase in value when the price of the share goes up and vice versa. Historically, over periods of several years or more, many types of stocks have increased in value. However, past performance is no guarantee of future results. Now that you understand the three basic asset classes in which investments are generally made you need to know more about the potential risks of investing.
4.	Risk-return tradeoff
	All investments are subject to risk. Risk refers to the possibility that an investment could lose value or not gain any additional value because of swings in the financial markets.
	All investments have a risk-return tradeoff. Historically, lower-risk investments — like cash equivalent (e.g., fixed deposit) investments — have typically offered lower potential for long-term growth and investment return. Higher-risk investments — like   stock investments — have typically offered greater potential for long-term growth and investment return.   By understanding the risk associated with various investment options, you can choose investments that best match your risk tolerance and personal circumstances.
5.	How do you decide how to invest?
	It depends on many factors. If you are like most people, you hate the thought of losing money (RISK) but you also like the idea of making money on your investments (RETURN). So, how much investment risk should you take? Only you can answer this. You need to establish a balance between risk and return that you are comfortable with. When establishing this balance, you should consider:
	1. Your risk tolerance — the amount of risk you are comfortable with and can afford to take. Can you still sleep at night if your investments have temporary short-term losses? Do you have enough savings that you can financially afford to take some investment risk?   2. Your investment time horizon — How long will your assets be invested? Your CPF savings are for the long term. Unless you are close to retirement or have a short-term investment time horizon for other reasons, you should generally invest for the long term, but you need to decide what “long” means to you.   3. Your overall financial situation — How much money will you need to sustain your lifestyle during retirement? Do you have other assets set aside for retirement besides your CPF savings? How are all of those assets invested? What are your financial commitments?
6.	How much risk are you willing to take?
	As investment objectives and goals differ from person to person, the question of how much “risk” to take is a personal one — no one answer is correct for everyone. Only you can decide what risk/return tradeoff you are comfortable with, but the following questionnaire may help you assess your tolerance for risk. Click here for the Risk Tolerance Questionnaire.
7.	How do you know if you are investing for the short term or long term?
	The number of years you have to save and invest is called your “INVESTMENT TIME HORIZON” — it is the amount of time between when you invest and when you need to spend the proceeds of your investments. This spending can be for your retirement or for other financial commitments which you need to meet, such as to purchase a house or to pay for your children’s education expenses. Financial experts might suggest that you think of your investment time horizon this way: LONG TERM If you need your savings 10 or more years from now In most individuals’ circumstances, you should emphasize stock investments for higher long-term growth. It is important that your savings grow if you need this money to last a number of years, such as during retirement. MEDIUM TERM If you need your savings 4 to 9 years from now You should pursue a combination of bond and stock investments. Bond investments for your savings to grow at a rate of return that is slightly ahead of inflation on average (without risking your entire savings in stocks). Stock investments for higher long-term growth. SHORT TERM If you need your savings within 3 years You should emphasize primarily cash equivalent and bond investments. Cash equivalent and bond investments because these are fairly stable types of investments and you don’t have many years to let the ups and downs of investing smooth out. Even though investing in “high risk” investments can seem scary, if your investment time horizon is long, you can afford to ride out the short-term ups and downs in the financial markets and your money has more of an opportunity to grow through the compounding of investment returns. In fact, the longer you have to save and invest, the more “risky” it can be to invest in “low risk” investments. This is because these investments don’t grow very fast and they may not help you beat inflation in the long term. Look at your score from the Risk Tolerance Questionnaire and your Investment Time Horizon to help you decide what type of “Equity Risk” Category under the Risk Classification System may be right for you. RISK TOLERANCE SCORE INVESTMENT TIME HORIZON EQUITY RISK CATEGORY   5 to 19 points Short-term ( less than 3 years) Lower Risk 20 to 29 points Short-to-medium-term (less than 10 years) Low to Medium Risk 30 to 37 points Medium-to-long-term (4 or more years) Medium to High Risk 38 to 45 points Long-term (10 or more years) Higher Risk
	In choosing investments that fit your risk tolerance, please be sure to take your entire investment portfolio into account, not just the amount you have available to invest in unit trusts, ILPs or ETFs. For example, your risk tolerance may be that of a Low to Medium Risk investor, but most of your existing assets are already invested in Lower Risk investment options. In that case, you may want to focus on investing in Higher Risk unit trusts, ILPs and ETFs in order to move your total portfolio towards a Low to Medium risk profile. Alternatively, your risk tolerance may be that of a Medium to High Risk investor, but you already have substantial investments in individual stocks or stock-focused unit trusts, ILPs or ETFs. In that case, you may want to focus on adding investments in Lower Risk or Low to Medium Risk investment options so as to bring your overall portfolio back in line with a Medium to High Risk profile. What “Equity Risk” Category under the Risk Classification System corresponds to the type of investor you are? Once you have decided, look at the types of investments which fall under your particular Equity Risk Category. (updated tables of unit trusts, ILPs and ETFs included under CPFIS can be found at http://mycpf.cpf.gov.sg/Members/Gen-Info/FAQ/Investment/INV-Asset-Enhance.htm. You can also check the financial pages of The Straits Times, Business Times and Lianhe Zaobao newspapers). These investments may be appropriate for your investment profile. However, it should be noted that the table above is only a rough guide. CPF members would be well advised to undertake a much more thorough analysis of their own specific financial situation, investment objectives and individual needs before making their investment decisions. Depending on your individual financial circumstances and investment objectives, the indicated Equity Risk Category and the corresponding types of investments may or may not be the most appropriate for reaching your investment goals. Despite the guidance which is provided in this FAQs and through the Risk Classification System, CPF members are responsible for making investment decisions themselves, and must take responsibility for the investment outcomes which result, whether these are good or bad.
8.	Diversification can help limit your risk
	Diversification, or spreading your assets among several investments, helps you smooth out potential ups and downs of your investment returns. Even if one investment does poorly, the others may do better, thereby potentially improving your overall return. You can diversify your investments at two distinct levels by spreading your investments among: different asset classes — cash equivalents (e.g., fixed deposits),bonds and stocks and/or different markets — geographic regions, foreign countries, foreign currencies, industries and companies. The information below on “Focus Risk” explains more about these topics.
9.	Stick with your strategy
	Once you have decided on the right investment mix to meet your investment objectives and goals, you should try to maintain a consistent strategy. In general, you should only change your strategy if your personal circumstances have changed. As tempting as it may be to “bail out” if your investments take a dive, financial experts generally suggest that you stay fully invested. If you try to “time the market” you run the risk of getting caught in the trap of “buying high” and “selling low.” If you hold on to your investment, chances are good that its value may eventually go back up, and that it may end up being worth more than when its value dropped.
10.	Now you are ready to invest...
	Now that you have an understanding of the amount of risk you are comfortable with and of your investment time horizon, you are ready to make some investment decisions. The CPF Board has classified unit trusts, ILPs and ETFs permitted under CPFIS into the Risk Classification System. This section of the FAQs describes the Risk Classification System and the information it is intended to convey. There is a wide range of investments available under the CPFIS to help you achieve your investment objectives and goals. The Risk Classification System is intended to help you determine which of these may be most appropriate for your investment circumstances.
11.	How does the risk classification system work?
	The Risk Classification System splits the investment risk associated with an investment into two broad components. For purposes of the Risk Classification System, we will refer to these components as “Equity Risk” and “Focus Risk". The actual risk classification of the unit trusts, ILPs and ETFs included under CPFIS can be found at http://mycpf.cpf.gov.sg/Members/Gen-Info/FAQ/Investment/INV-Asset-Enhance.htm. You can also check the financial pages of The Straits Times, Business Times and Lianhe Zaobao newspapers for the unit trusts, ILPs and ETFs included under CPFIS. EQUITY RISK Equity Risk is related to exposure to the “riskier” types of investments in the unit trust, ILP or ETF. The greater the proportion of assets invested in stocks, the higher the Equity Risk. Conversely, the greater the proportion of investments in bonds and cash, the lower the Equity Risk. Remember, the longer your Investment Time Horizon, the more likely it is you can comfortably take on more Equity Risk, and vice versa. Importantly, over the longer term, a high Equity Risk investment may reasonably be expected to outperform a lower Equity Risk investment. However, in adverse market environments this expected relationship may not hold true for shorter periods. Occasionally it will not hold true even for some fairly long periods (as much as a decade or more). Under the Risk Classification System, unit trusts, ILPs and ETFs are classified into one of the four categories of Equity Risk shown in the table below. Unit trusts, ILPs and ETFs which are classified within the same Equity Risk Category fall roughly within the same broad range of expected long-term reward. However, it should be understood that there are unit trusts, ILPs and ETFs which fall very close to the cutoffs between categories. It is important to recognise that the four Equity Risk categories presented provide a fairly simplistic representation of the full range of alternatives in terms of expected risk which is associated with increasing levels of stock and other “risky investments.” Again, despite the guidance and information provided in this FAQs, as a CPF member you are responsible for making your own investment decisions, and for understanding the risks you are taking. FOCUS RISK As used in the Risk Classification System, the term “Focus Risk” reflects how focused the investments of the fund are in particular geographical regions, foreign countries, foreign currencies, industries or individual companies The purpose of providing information on Focus Risk is to make CPF members aware of certain types of risks associated with a given investment which may not be readily apparent at first glance. In general, an investment will have a higher level of “Focus Risk” under the Risk Classification System because it is relatively less diversified. For example, a unit trust or ILP that invests in shares of companies from around the world would have lower Focus Risk (be more broadly diversified) than a fund that invests in shares of Japanese companies only. The Japan-only fund would have a higher level of Focus Risk because it is less diversified (invests in one foreign country only). Again, the purpose of providing information on Focus Risk is to make CPF members aware of certain types of risks associated with a given investment which may not be readily apparent at first glance. To help convey this information, the investments within each Equity Risk category are further classified into one of two categories of Focus Risk — Broadly Diversified or Narrowly Focused. BROADLY DIVERSIFIED A Broadly Diversified unit trust, ILP or ETF will tend to have investments which are spread across relatively more geographical regions, countries, industries and individual securities. In general, over the long term a Broadly Diversified unit trust, ILP or ETF in a higher Equity Risk category can reasonably be expected to provide higher investment returns than a Broadly Diversified unit trust, ILP or ETF in a lower Equity Risk category. To take a specific example, an investment classified as Higher Risk-Broadly Diversified can reasonably be expected to provide higher investment returns over the long term than a Lower Risk-Broadly Diversified investment. As has been stated previously, however, this result may not hold true in the short term, and it may not hold true even for periods in excess of a decade in the case of an adverse market environment. NARROWLY FOCUSED A Narrowly Focused investment will tend to have investments which may be focused in particular geographical regions, countries, industries or individual corporations. In general, a Narrowly Focused investment will have the potential to produce higher returns in a short-term period, but will also have more downside risk, than a Broadly Diversified investment comprised of the same class of assets. That is to say, Narrowly Focused unit trusts, ILPs or ETFs within a given Equity Risk category will tend to have greater volatility of results in both the short term and long term than Broadly Diversified unit trusts, ILPs or ETFs in the same Equity Risk category. It is important for CPF members to understand, however, that while Narrowly Focused investments will tend to have higher upside potential and higher downside risk than Broadly Diversified investments in the same Equity Risk category, they will not necessarily be associated with a higher level of long-term expected results. To take an extreme example, if you own shares in an individual Singapore-listed company, you have a very Narrowly Focused investment (i.e., one with no diversification). On average, you should not expect a single company selected at random to outperform the Singapore market as a whole (since the Singapore stock market is comprised of all the individual Singapore-listed companies combined), but you can expect that single company to provide more volatile short-term and long-term results than a more broadly diversified portfolio of Singapore stocks. SUB-GROUPS WITHIN THE NARROWLY FOCUSED RISK CATEGORY Currently, there is a substantial number of unit trusts and ILPs included under CPFIS which fall into the Narrowly Focused risk category. For a more orderly presentation of the information, these products have been grouped into three broad groups within this risk category: "Singapore-Centred Securities," "Asian Region Focused Securities," and "Other Narrowly Focused Securities." These three broad groups are intended to correspond roughly to the principal geographic focus of each unit trust, ILPs or ETFs. That is:
	1. The unit trusts, ILPs or ETFs grouped together under the “Singapore-Centred Securities” sub-heading tend to maintain a substantial proportion of their investments in securities of Singapore companies or the Singapore government;   2. The unit trusts, ILPs or ETFs grouped together under the "Asian Region Focused Securities" sub-heading tend to maintain the major portion of their investments in the Asian region (excluding Japan), with relatively broad diversification maintained across various countries within this region; and,   3. The unit trusts, ILPs or ETFs grouped together under the "Other Narrowly Focused Securities" sub-heading have a global industry sector focus, a single country focus, a focus on a region other than Asia, or otherwise do not fit into the groups associated with the first two sub-headings.   These three broad groupings have been provided in order to make it easier for CPF members to perform comparisons across investments which are roughly similar in terms of geographic focus. However, the inclusion of a specific product under one of these three sub-headings is not meant to imply anything about the risk posture of that product, beyond the implications of the fact that it is in the Narrowly Focused category. In other words, products under one sub-heading within the Narrowly Focused category are not necessarily higher or lower risk than products under another sub-heading within that category. CPF members should note that inclusion by the CPF Board of a substantial number of Higher Risk-Narrowly Focused unit trusts or ILPs is not an endorsement of this risk category. It just so happens that investment managers and insurers have proposed a relatively large number of unit trusts and ILPs which fall into this risk category. WHEN SHOULD I INVEST IN BROADLY DIVERSIFIED INVESTMENTS AND WHEN SHOULD I INVEST IN NARROWLY FOCUSED INVESTMENTS? After you have made your decision on how much to invest in the three basic types of investments: cash, bonds and stocks (i.e., based on the amount of Equity Risk you are comfortable with), for most CPF members, investing in Broadly Diversified investments within that Equity Risk category should generally help minimise investment risk. In other words, investing in Broadly Diversified investments should help reduce risk compared with investing in Narrowly Focused investments in the same Equity Risk category. However, you may want to invest in the Narrowly Focused investments for reasons including the following: You enjoy riskier investments, even when the odds are not necessarily in your favour. You are happy to take on the extra downside risk of not diversifying because of the potential for higher returns, although you are aware that a positive result is not guaranteed. For investments in the same Equity Risk category, it is reasonable to expect potential rewards over the long term to be very roughly the same for both a Broadly Diversified investment and a Narrowly Focused investment. However, you may want to accept the higher downside risk of a Narrowly Focused investment if you think that a Narrowly Focused investment may give better results in the short term. For example, if you are confident about the recovery of the Japanese economy in the short term, you may wish to invest in a Japan focused unit trust even though this unit trust has higher risk than a better diversified global equity unit trust.
12.	Need more information?
	CPF INVESTMENT SCHEME For more information on your eligibility, the amount of CPF savings which you are able to use for investment and the administrative aspects of the CPFIS, please refer to the Frequently Asked Questions (FAQs) on CPF Investment Scheme. UNIT TRUSTS, ILPs AND ETFs INCLUDED UNDER CPFIS For detailed information on the various products, please contact the relevant fund managers and insurers. The contents in this FAQs are informational only. It is not intended as investment advice. The unit trusts, ILPs and ETFs on which this FAQs is focused represent only some of the available options under CPFIS. For more information on the other investment options, please refer to the Frequently Asked Questions (FAQs) on CPF Investment Scheme.
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CONTACT US   FOR ENQUIRIES, PLEASE CALL THE CPF CALL CENTRE AT 1800-227-1188 OR E-MAIL TO Investment@cpf.gov.sg