Specified Investment Products
Discover Specified Investment Products (SIPs), a category of complex financial instruments requiring enhanced investor knowledge and risk awareness, including derivatives, structured products, and certain securities.
What Are Specified Investment Products (SIPs)?
Specified Investment Products (SIPs) are specialized investment products whose structures, features, and risks are more complex than other financial products. SIPs require investors who have specialized knowledge and skills to understand and handle it.
Some of the examples of Specified Investment Products (SIPs) are as follows but are not limited to:
- Futures
- Options
- Structure Warrants
- Exchange-traded funds (ETFs)
- Exchange Trade Notes (ETNs)
- Contract for Difference (CFD)
- OTC Metals.
Due to their multiplex calculations of returns and losses, these investments are considered to be much more complex and difficult to understand than ordinary stocks, bonds, or derivatives.
Specified Investment Products (SIPs) are well-known in Singapore. To trade in SIPs, the Monetary Authority of Singapore (MAS) states that a potential investor must pass two tests: Customer Knowledge Assessment (CKA) and Customer Review Account (CRA).
- Specified Investment Products (SIPs) are a category of investment products that require certain regulatory disclosures and suitability assessments before they can be marketed or sold to investors.
- Due to their complexity and higher risk, SIPs are often targeted at more experienced investors or institutions, compared to standard investment products like mutual funds or savings accounts.
- Regulations surrounding SIPs aim to protect investors by fully understanding the investment's risks and features before committing funds.
- Due to these products' complex nature and potential high risks, investors must be assessed for their suitability to invest in SIPs, considering factors like risk tolerance, investment goals, and financial situation.
Understanding Specified Investment Products
An investment product is considered to be an SIP when a particular investment product fulfills the requirements set by the financial authorities in the nation where they are traded. These classification criteria are mostly the complexity, risks, and the need for expertise and knowledge.
SIPs have a very complex structure and terms. These investment products may include derivatives, structured products, and different financial instruments, which demand a deep understanding of the financial markets.
The amount of risks that encompass the SIPs is alarming and should be handled with care. Comparatively, they carry more risks than ordinary investments, like in stocks and bonds. These risks are market risk, credit risk, and liquidity risk.
SIPs are most suitable for investors who have the necessary expertise in handling investment products. Financial institutions like the Monetary Authority of Singapore (MAS) conduct examinations to assess investors' eligibility to invest in SIPs.
Types Of Specified Investment Products
Specified Investment Products (SIPs) are classified based on whether or not they are listed on the exchange.
Based on this, SIPs are classified into Listed and Unlisted Specified Investment Products (SIPs).
Let us understand them below.
What Is Listed Specified Investment Products
The listed SIPs are listed on a stock exchange. Some of the examples of listed SIPs are
- Structured Warrants
- Futures
- Daily Leveraged Certificates
- ETFs
- ETNs
- Callable Bull/Bear Contracts
Listed SIPs are available to the general public for trading. Their prices fluctuate depending on market conditions and forces.
To be eligible to trade in listed investment products, a potential investor must pass the CAR.
What Are Unlisted Specified Investment Products
The Unlisted SIPs are investment products that aren’t listed on a public stock exchange. Some of the examples of the Unlisted SIPs are as follows:
- Structured Notes
- Specific Unit Trusts
- Leveraged Foreign Exchange
- Currency-linked Investments
- Structured Deposits
- Investment-linked Life Insurance Policies
These investment products are directly offered by the financial institutions and may have certain terms and conditions.
For potential investors interested in unlisted SIPs, they must pass the CKA.
What Is Required To Invest In Listed And Unlisted SIPs?
Since 2012, the Monetary Authority of Singapore (MAS) has taken initiatives to protect retail investors and brokers. These investors are assessed for their ability to invest in SIPs with relevant specialized knowledge and experience.
As mentioned above, potential investors are required to undergo a customer account review (CAR) conducted by financial institutions to initiate the listed SIPs.
On the other hand, a potential investor interested in investing in unlisted SIPs must pass the Customer Knowledge Assessment (CKA) conducted by the financial institutions.
Let us understand both of these tests below.
Customer Account Review (CAR)
An investor interested in investing in listed SIPs is required to go through a formal review designed by the financial institution.
The test starts with the financial institution requesting educational information, investment experience, and work experience.
The intention behind conducting a CAR is to assess whether a potential investor meets one of the following criteria:
- Relevant Education Qualifications
- A Professional Financial-related Qualifications
- Having at least consecutive 3 years of working experience in the prior 10 years
- Executing at least 6 transactions in the last 3 years in the listed SIPs
- Completing the SGX Online Education Programme, a free learning module, and passing at the end of the course.
The result of the test can be obtained from financial institutions.
Customer Knowledge Assessment (CKA)
If the investors seek to invest in the unlisted SIPs, they are subjected to Customer Knowledge Assessment (CKA).
The test initiates with the financial institutions requesting educational information, investment experience, and work experience. This information is utilized to assess if the investors fulfill one criterion at least of the following:
- Relevant Education Qualifications
- Professional Finance-related Qualification
- Having at least consecutive 3 years of working experience in the prior 10 years
- Executing at least 6 transactions in the last 3 years in the listed SIPs
- Completing the free learning modules from the ABS-SAS online learning platform on SIPs and passing the assessment at the end of the program.
The result of the test can be obtained from financial institutions.
What Are Excluded Investment Products (EIP)?
The Excluded Investment Products are investment products that are generally simple to understand, less complex, and easily understood by retail investors.
There are some Exchange-traded Funds (ETFs) that can be classified under the Excluded Investment Products that meet the criteria.
This means the investors can invest in ETFs without having to pass the CAR since the products EIPs deal with are less complex and easily understood by the general investors.
Specified Investment Products (SIPs) Vs. Excluded Investment Products (EIPs)
SIPs differ from EIPs in different ways. Let's discuss the differences between both investment products below.
| Aspect | SIPs | EIPs |
|---|---|---|
| Regulation | SIPs are subjected to strict and stringent rules and regulations set by authorities. Like MAS in Singapore. | Not subject to any specific limitations like the SIPs. |
| Complexity | Complex and very difficult to understand for the investors. | A lot simpler and straightforward, comparatively less complex than SIPs |
| Risk Profile | The heightened risk, complexities in the structure, and possible market volatility make it very risky. | There are risks of market volatility. However, they carry lower risks and are more suitable for the average investor. |
| Market Access | Specially restricted and accessible only to accredited investors. | There are no specific restrictions on who can trade in the EIPs |
| Investment Goals | Investors use this investment product to meet specific and customized investment objectives. | Investors use this investment product for general investment purposes. |
Specified Investment Products (SIPs) FAQs
Specified Investment Products (SIPs) are specialized investment products whose structures, features, and risks are more complex than other financial products.
There are two types of SIPs, listed and unlisted, which are differentiated based on whether they are registered on an exchange or not.
Structured Warrants, Futures, Daily Leveraged Certificates, ETFs, ETNs, and Callable Bull/Bear Contracts are examples of listed SIPs.
Unlisted SIPs include Structured Notes, Specific Unit Trusts, Leveraged Foreign Exchange, Currency-linked Investments, Structured Deposits, and investment-linked Life Insurance Policies.
CAR is a formal review designed by the financial institution where an investor interested in investing in listed SIPs is subjected.
A formal assessment by the financial institution of investors is needed if they seek to invest in the unlisted SIPs.
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