Investing Through FSM Auto-Sweep Account: 5 What exactly you need To Know Before Putting Your hard earned money Into This Cash Management Account
Last year, FSMOne launched a new product – FSM Auto-Sweep Account – that is being described by the company as a cash management solution that serves as an alternative parking facility towards the FSM Multi-Currency Cash Account.
With its ability to earn potentially higher rate of interest at no additional effort required on the part of investors, the FSM Auto-Sweep Account would be an attractive proposition for many investors, particularly existing FSMOne users.
But prior to you making a decision on whether or not you need to open and choose this cash management account, it is important for you to first understand how it works and whether it provides an investment solution that you are looking for.
#1 Earn Interest On Your Unused Investment Monies
A common problem that lots of investors face is the challenge of earning interest on unused investment monies – money set aside for investment purposes but have yet to be invested.
This could be money from your savings account which are set aside for future investments, income received from your existing investments (e.g. dividends, coupon payments) or sales of proceeds that you receive when an investment matures (e.g. you obtain your principal capital from the bond which matures).
Very often, whenever we have this money, we don't deploy it immediately for the investments as we would prefer to wait for the right opportunities to invest. However, the problem with holding cash is that it earns you no interest whatsoever.
What the FSM Auto-Sweep Account does is it automatically 'sweeps' your unused investment monies into a discretionary portfolio which is managed by FSM. The purpose of this portfolio is to ensure that your idle money is able to earn a higher interest than simply leaving it as being cash – which provides zero returns, or perhaps in a savings account that provides very low interest rates.
It's important to note that you have to be an existing FSMOne Account user before you are in a position to activate and opt for Auto-Sweep Account enrolment.
#2 What's Being Invested Via The Auto-Sweep Account?
This account is technically an investment portfolio, and not a checking account. The interest you earn is made possible through the returns generated by the assets within the portfolio. FSM does not pay you interest from its balance sheet. Rather, they to help you manage your unused investment monies.
A quick look at the portfolio for the Auto-Sweep Account reveals this is a very low-risk portfolio constructed using short duration bonds (i.e. bonds that are maturing soon and whose values will not be impacted much by rates of interest movement), money market funds along with a small percentage held in cash (to keep liquidity for the fund).
As shown above, in this Auto-Sweep portfolio, the Fund Houses involved are LionGlobal, part of the OCBC group, and Fullerton, a subsidiary of Temasek Holdings. These funds were carefully selected for his or her ability to provide yield and stability.
FSM will manage the fund with respect to all investors to ensure that it achieves the fund objective, which would be to earn a higher return compared to Cash account while maintaining a high level of liquidity and capital preservation. So, while it's good for you to know what's within this portfolio, there is no action required on your part.
A small management fee of 0.05% per quarter is charged.
#3 Do you know the Returns That I Will Get?
Since its inception in July 2021, the most recent net yield of the Auto Sweep account is reported by FSM as 0.974% p.a. (updated as of 22 June 2021).
Since the interest returns from the assets which the funds are invested into will vary, the net yield reported may also change on a weekly basis.
For example, in December 2021, when interest rate levels were generally higher, the web yield of the fund what food was in 1.364%.
All interest earned from the underlying funds will be reinvested.
#4 You Can Invest The Funds In The Auto-Sweep Account Anytime You Want
Similar to the FSM Cash Account, you'll be able to immediately invest the funds out of your Auto-Sweep Account on all types of investment products provided by FSM anytime you want. These include stocks, bonds, ETFs and unit trusts.
Just like any other savings or prefunded investment account you will probably have, the ability for you to deploy funds out of this account to make investments will never be an issue.
Apart from being a convenient payment method for investments on FSMOne, the commission rates for stocks and ETFs are also kept low at 0.08% for Singapore, Hong Kong and US Markets.
#5 Auto-Sweep Account May be used to Invest In Foreign Currency Investments
The Auto-Sweep Account is really a Singapore Dollar (SGD) cash management account. What this means is it only holds cash and make investments which are denominated in SGD. There is no foreign exchange risk involved.
You can however still invest directly in forex products such as stocks, mutual funds or ETFs which are non-SGD denominated. A conversion rate will be shown so that you will know how much a good investment will cost you (in SGD) after forex conversion.
Allowing Investors To Earn Enhanced Interest Rates
With the Auto-Sweep Account, FSM users can use their unused investment monies to earn returns which are comparable to these financial products.
Savings accounts: You will find savings accounts in the market now that rewards customers with relatively high interest rate returns, though this have been reduced in recent months. However, in order to enjoy these high interest rates, customers have to carry out numerous transactions. Including crediting your salary, paying bills, while using bank's credit card, investing and much more.
With the Auto-Sweep Account, investors can earn reasonable returns on their unused monies, without having to jump through hoops.
Fixed deposits: Fixed deposits are a low risk investment instrument that provides guaranteed returns. However, fixed deposits lack liquidity as investors have to lock in their capital to be able to enjoy the contracted interest rate.
The Auto-Sweep Account offers investors interest rates comparable to fixed deposits, while providing liquidity as investors can use the money to invest at any time. Additionally, FSM users just have a minimum of $50 deposited in the Auto-Sweep Account to get going.
Do note however that unlike savings accounts that are insured under the SDIC, the Auto-Sweep account isn't covered as it isn't a savings account.
The Auto-Sweep Account Enables you to Hold On To The Advantages Of Cash (Without The Disadvantage)
As an investor, the main reason to use the Auto-Sweep Account is because you want to enjoy the advantages that cash provides you with. This means 1) enjoying capital preservation in your unused investment monies when the market doesn't perform well and a pair of) having the funds on hand to get good investment opportunities whenever it surfaces. The Auto-Sweep Account allows you to achieve both of these.
At the same time, the chance cost of holding on to cash for a prolonged period of time is also a real challenge that investors face. By helping its users to deploy unused investment monies in to the Auto-Sweep Account, FSM users can now earn higher interest on idle cash which aren't yet invested.