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Dear buddies

For those using the POEMS account, I need your advice as to whether you think it's a good idea to authorize the excess fund management facility.

The idea behind this scheme is that the excess funds are put into a money-market fund which invests primarily in short-term, high quality money market instruments and debt securities, i.e. at least short-term 'A2' or long-term 'A' as rated by S&P. The money is available for withdrawal whenever needed, and transactions are automatically settled when sufficient funds are maintained. Looking at the annual returns as reported here and here, the funds return about 0.60% p.a (1 year performance), better than the 0.05% p.a on the generic interest-bearing savings accounts.

Some of the fund's debt holdings include Bank of China, Capitamalls Asia, F&N, HSBC, Mapletree, Maybank. These are companies where default in payments is highly unlikely.

However, the disclaimers have left me wary.
1. the funds are not principle-guaranteed, i.e. no guarantee to the amount of capital investment and/or return received
2. annual management fee of 0.5% of NAV

Overall, I think the excess funds option is versatile and relatively safe, and is on the verge of applying for it. However, I would like to hear dissenting opinions, if any.

Input from buddies is much appreciated

Is the 0.6%pa enough to compensate for the possibility, however small, of not getting your capital back?

And is that performance return before or after the 0.5% mgt fee?

I think it is fine but the POEMS money market fund is not covered under SDIC. So, if Philip Securities goes bust, there is no guarantee that the account holder will get back the full amount.
The only good point of this fund management is that you can enter and exit like a saving account without sales charge and penalty.

It is a good temporary fund holding account for your fund for stock purchase and selling.

But, I would not recommend putting your entire fortune in the account though haha.

Is a pretty nice feeling every time you settle a trade expecting the balance to be A but you have A+. It's like a free meal from "Heaven".
There is some risk behind but so far works ok. So I wouldn't put too much cash there.

After going through the GFC, I closed a similar excess fund management facility with my broker. I feel uncomfortable because money market funds are not exactly risk free and the fund manager can invest in all kinds of commercial papers, and not only that we could be taking all sorts of counter party risks that we are not aware of. All these for that 0.X% additional returns which is not even guaranteed.

There are a couple of foreign banks (maybank and cimb) that offer higher interest rates than what the local banks are offering on their savings account, and they are covered under the deposit insurance scheme as well.

Just like how one does in investment decision making, if u feel uncomfortable, walking away might be the best option.

I will not opt for it. I do not know exactly the risk involved, and the reward is only 0.x%.

Since i keep no or minimum cash reserve, so the facility does not benefit me much even i opt for it

Thanks for the heads up guys! I am better informed now.