In Singapore, one of the less well-known ways to invest for retirement over the long term is through the Supplementary Retirement Scheme (SRS).
It gives Singapore citizens and PRs, resident in Singapore, up to S$15,300 in annual tax relief. Meanwhile, for foreigners resident in Singapore, the annual SRS cap for tax relief is S$35,700.
While Singaporeans’ annual tax relief is capped at S$80,000, the SRS offers us one way to save more on income tax over time.
For example, for someone who is earning S$100,000 a year, maxing out their SRS cap of S$15,300 would give them S$1,760 in tax savings.
Admittedly, the SRS is a long-term investment scheme given you can’t actually withdraw funds (without a penalty) until you’re 62 years old.
With that, for anyone who is thinking about putting money to work in the SRS, which financials stock is the better option: DBS Group Holdings Ltd (SGX: D05) or iFAST Corporation Ltd (SGX: AIY)?
Singapore’s leading bank
DBS is Singapore’s largest bank by market capitalisation and has been a leader in the local banking scene as its returns over the past decade have easily surpassed those of rivals United Overseas Bank Ltd (SGX: U11) and Oversea Chinese Banking Corporation Limited (SGX: O39).
For example, by April of this year, DBS was in the process of two recent purchases: one a takeover of India’s Lakshmi Vilas Bank (LVB) and the other a 13% stake in Shenzhen Rural Commercial Bank (SZRCB) in China.
The latter deal in China should strengthen its position in the Greater China market, where it has a particularly strong presence in Hong Kong as the seventh-largest bank in the city by total assets.
With a trailing 12-month dividend yield of only 2.4%, DBS might be considered “lower yield” but that would be misleading as the bank’s dividend payout is capped by Monetary Authority of Singapore (MAS) regulations.
Having delivered a total return of 203% over the past decade (with 100% of that coming from the dividend alone), DBS shares could be worthy of a place in your SRS for the long term.
Growing in China
On the other side of the financial divide we have iFAST, a homegrown fintech investment platform that has aggressive expansion plans in China.
The company’s share price on been on a rocket the past 12 months as its stock price is up by more than 640% during that period.
Meanwhile, its five-year price return has been not that much more, coming in at 675% since June 2016. That gives you an idea of how the Covid-19 pandemic has supercharged its story.
The 2020 earnings numbers for iFAST illustrate why that was the case. In 2020, iFAST saw net profit balloon by 122.3% year-on-year to S$21.15 million while there was only a 31.7% increase in net revenue.
The disparity between the two growth figures highlights the scalability and profitability of iFAST’s business model, which is essentially to provide an independent investment platform for solutions that financial advisers, institutions and fund managers can utilise.
By taking paper out of the administrative equation, and letting investors consolidate portfolios online in one place, iFAST’s platform services took off during the Covid-19 pandemic.
It has lofty goals. Although the company ended 2020 by S$14.4 billion in assets under administration (AUA), it’s aiming to reach S$100 billion in AUA by 2028.
Growth or income?
Both DBS and iFAST pay a dividend, although iFAST’s is a lot smaller. Yet if we’re putting money into the SRS, then it’s up to your own personal preference for either growth or potentially higher dividends.
Regardless, we should focus on the total return, which is the price movement + dividend return, when figuring out which is the better choice.
That’s because SRS withdrawals are taxed at a rate of 50% of the withdrawal sum after retirement (although this can be spread out over 10 years).
So, for investors who are in a higher tax bracket, and have the disposable income to put towards the SRS, it might be the better option to go with iFAST based on its future total return prospects.
Disclaimer: ProsperUs Head of Content Tim Phillips owns shares in DBS Group Holdings Ltd.
Tim, based in Singapore but from Hong Kong, caught the investing bug as a teenager and is a passionate advocate of responsible long-term investing as a great way to build wealth.
He has worked in various content roles at Schroders and the Motley Fool, with a focus on Asian stocks, but believes in buying great businesses – wherever they may be. He is also a certified SGX Academy Trainer.
In his spare time, Tim enjoys running after his two young sons, playing football and practicing yoga.