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SRS account, CPF account and rights issues.

Thursday, July 9, 2015

I always avoid using money in my SRS or CPF accounts to buy stocks of companies which I think might need to do equity fund raising in future. 

So, no REITs or business trusts, for examples.

Here are a couple of conversations I had recently:

Reader #1...
this is the first time i'm writing, and I'm hoping you can spare a few minutes to share your knowledge and experience with me. 

i bought a counter through my CPF-IS long ago, and I have maxed out my CPF-IS. 

this counter has an on-going rights issue (190 for every 100 owned). 

i would like to sell the rights (as i don't have the "capacity" in my CPF-IS to buy the rights. 

assuming i owned 2000 shares, do i sell 2000 rights, or 3800 rights?

i tried asking my broker, but my broker doesnt seem to know the answer.

I know you have blogged about rights a number of occasions, so i figured you probably know better than most people. 

AK says...
I am not a licensed financial adviser or broker, so, take what I say with a pinch of salt. 

Disclaimer applies. ;)

First, find out if the rights are renounceable. 

If they are renounceable, then, you are allowed to sell the nil-paid rights given to you when they start trading.

If you are given 190 rights for 100 shares owned, if you owned 2,000 shares, you should be given 3,800 rights units (nil-paid) and that is what you can sell.

Oh, you might want to consider firing your broker. ;p

Reader #2...

Hope all is well.

Have been Following your blog silently for the past 5 years & invested quite a bit on reits. 

Thanks for the education.

Recently OUE Com Reit issued rights.

I bought some using SRS.

How do I subscribe to my entitled rights using my SRS?

If my SRS has no excess funds, what can I do?

AK says...
I only use my SRS money to buy stocks which I am pretty sure will not have rights issue precisely to avoid a situation like the one you have described.

If you do not have extra funds in your SRS account, then, you are caught in a difficult situation. 

You might want to call the bank your SRS account is maintained with and ask them for advice.

As an aside, in case there are people who are wondering why AK is not blogging as much as before, this is another recent conversation:

I need to learn how to break and blog. :)
Related post:
High yielding business trusts: A discussion.


Raymond said...

I asked the question before to the bank i set srs acct with. If you maxed out your contribution, u cannot go for rights issue, be it cash or srs.

Presume similar rule might apply to cpf too.

victorlsl1 said...

its not that the broker don't know, its because the broker is bz and would prefer to spend his time on more strategic clients. :)

victorlsl1 said...

typically for SRS,its better to put in your contribution towards the end of the year so that you don't max out too early.

Serendib said...

i had first hand experience during the AIMSAMP REIT rights issue - if you cant exercise your rights issue allocation with SRS funds, you can use cash (at least thats what i was told). However, excess rights is not allowed with SRS funds - i had to use cash instead.

AK71 said...

Hello AK
One quick question
If my SRS account stock has right share call
And I had used up SRS monies
So the SRS entitlement can become a cash buy ?
Right share I mean
Instead of SRS monies in the account ?

Assi AK:
That is the problem with using SRS. I only use SRS money for stocks which is unlikely to issue rights.
Otherwise, must maintain a cash buffer in the SRS.

Oh shit
Really ? I need to check with broker
Maybe you can post that at your blog
This is one big "problem" of SRS

Assi AK:
I blogged about this before, actually.

Unknown said...

Hi AK, understand right issue is a problem for using SRS funds. How about new ETF REITS where the manager will buy the rights thus no new funds required by investors? Is good bet using SRS funds for ETF REITS like the Lion-Philip S-REITS?

AK71 said...

Hi NU,

I don't find REIT ETFs attractive and I blogged about it before too.

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