CDP? Custodian? Brokerage? I’m sure you’ve probably come across some of these terms while researching on how to begin your investment journey. Read on, if you’re interested to find out what exactly they are, and their functions.
1. Central Depository Account (CDP)
The CDP is a brokerage account that serves as a clearing, settlement and depository facility for Singaporean investors.
It basically serves as a “holding account” to safekeep all the shares bought.
When using a CDP, the purchased stocks are purchased in your name, making you the legal owner of the stick, and a shareholder of the entity. This would mean that you are entitled voting rights during their Annual General Meetings, receipt of company’s annual reports, and notification on any announcements by the company. With a CDP, you are also able to obtain shares from different brokerages.
The main con of a CDP is the high fees charged, with a clearing fee of 0.0325% and trading fee of 0.0075% of the contract value.
2. Custodian Account
A custodian account works similarly to a CDP account, in the sense where it’s a storage place for your investments.
Explained by its name, when using a custodian account, stocks that you have purchased are held in custody by the brokerage.
The upsides include the lower fees associated, increase in privacy, and the ability to invest in foreign markets, as long as you are using the same brokerage.
Since the shares are not listed under your name, you are therefore not entitled to the benefits mentioned in the CDP section, such as voting rights and notifications on announcements.
3. Brokerage Account
Using the CDP or Custodian alone will not permit you to begin your investment journey. Acting merely as a personal safe, you will require a brokerage account in order to start trading. A brokerage account acts as a platform that allows you to buy and sell investment products.
Given that you now have an idea of the three accounts explained above, you may pick either a CDP or Custodian depending on your preferences and/or needs! However, it is still important to do your due diligence when signing up with a particular brokerage firm in order not to get short-changed!