Chocolate Finance is the new popular talked about investment product in Singapore currently. You can see various Finfluencers promoting their referral links on different social media platforms and websites. And I kind of get where the hype is coming from.

With an advertised 4.2% fuss-free return on your first $20,000, it is currently one of the highest (if not the highest) returns offered for money market funds in the market.

With such a relatively high advertised return, the natural question would be What’s the catch? To answer that, I will highlight the 4 things individuals should consider before putting their money into Chocolate Finance.

Funds with Chocolate Finance are not capital guaranteed

From the get-go, individuals should be aware that their funds with Chocolate Finance would be invested into short-term bond funds. This means that there is no capital guarantee on your funds.

Also since Chocolate Finance is a fund management company licensed with a Capital Markets Services (CMS) licence, it naturally does not fall under the SDIC which covers up to $100,000 of your funds in individual banks.

Hence, Chocolate Finance should not be seen as an equivalent to banks’ fixed deposits as they differ in both risk profile and safeguard measures.

So with no capital guarantee, how ‘safe’ are your funds with Chocolate Finance? This can be broken down into two parts; 1) how Chocolate Finance manages its customer funds and 2) the bond funds that are invested in.

Chocolate Finance management of customer funds

Based on the company’s terms & conditions, any customer funds with Chocolate Finance are held by a custodian, Allfunds Singapore Branch, which is a MAS-Licensed institution.

This means that any funds invested on Chocolate Finance’s platform will be held separately from the company’s cash balances.

In a hypothetical worst-case scenario in which Chocolate Finance goes bankrupt, access to your funds would likely be disrupted until legal proceedings are completed. Whether there would be any capital loss (besides potential market losses) would be dependent on the conditions set out either by a court or any potential acquirer of Chocolate Finance.

The risk of Chocolate Finance’s invested bond funds

Currently, the three bond funds that Chocolate Finance invests customer funds into are as follows:

  • Dimensional Global Short-Term Investment Grade Fixed Income Fund (DSF)
  • Fullerton Short-Term Interest Rate Fund (FST)
  • UOBAM United SGD Fund (USF)

In terms of fund allocation, 40% goes into DSF, 35% goes into FST and 25% goes into USF.

Looking at the bond holdings of the individual funds, a bulk of them are AAA-rated to BBB-rated corporate and government bonds. In terms of duration, a majority of the bonds mature within a year, thus the low weighted average maturity of these bond funds.

Dimensional Global Short-Term Investment Grade Fixed Income Fund:

Fullerton Short-Term Interest Rate Fund:

UOBAM United SGD Fund:

From a credit rating perspective, the bond funds that Chocolate Finance invest in are relatively low risk. This does not mean that potential capital losses would not occur though, as customer funds are still tied to the net asset value of the bond funds.

Now that we are clearer about the potential risk of investing with Chocolate Finance, let’s consider the advertised 4.2% return next.

The underlying details of the advertised 4.2% return

As your funds with Chocolate Finance are invested into bond funds, the expected returns in normal circumstances would be in line with the average net returns of the underlying funds.

However, in Chocolate Finance’s case, there are two scenarios to consider; when the net return of the funds is above 4.2% per annum and when it’s below 4.2% per annum.

For the 1st scenario where the funds return above 4.2% per annum, Chocolate Finance would keep any returns exceeding 4.2% for themselves. For instance, if the net return of funds is 5%, 0.8% would go to Chocolate Finance while you would receive 4.2% returns.

In the 2nd scenario where the net return of the underlying bond funds is less than 4.2% per annum, Chocolate Finance would top up the shortfall and give you a 4.2% return on your money. This top-up would be done from Chocolate Finance’s own underlying cash balances.

This top-up for the 4.2% return would cover both capital losses and lower returns from the underlying bond funds, as long as the capital is $20,000 or lower.

It should also be noted that this top-up would only be applicable during the qualifying period (till 31st Dec 2024) or until Chocolate Finance accumulates assets under management (AUM) of $500 million, whichever is earlier. Chocolate Finance also reserves the right to amend both the qualifying period and qualifying threshold at any time.

Would Chocolate Finance need to top-up to hit the 4.2% return?

To determine if Chocolate Finance would need to top-up funds to fulfil the 4.2% returns, we can look at the performance of the underlying bond funds.

As of 8th July 2024, these would be the performance of three underlying bond funds.

Dimensional Global Short-Term Investment Grade Fixed Income Fund:

Fullerton Short-Term Interest Rate Fund:

UOBAM United SGD Fund:

As you can see, a return of at least 4% was only achieved in the past year on two out of three of the bond funds. This is not surprising as 2023 saw a general spike in global interest rates, thus new bonds were issued at a higher initial yield.

Based on Chocolate Finance’s bond fund allocation, their overall 1-year return would be 4.1925%.

Given that we are currently already at the peak of the interest rate cycle, I personally think that any funds Chocolate Finance would need to tap on to fulfil the 4.2% return during the qualifying period would likely be minimal, as any new bonds issued for the year would likely remain at high yields.

Likelihood of the 4.2% return continuing after the qualifying period

While Chocolate Finance should not have much issue fulfilling the 4.2% return during the qualifying period, there is a question of how long such a return can be sustained.

Given the general trend of global interest rates, I do not think the 4.2% return would continue after the qualifying period.

As mentioned earlier, we are already at the peak of this interest rate cycle. Hence moving forward, it’s a matter of when rate cuts will happen and how big it will be.

Based on the dot plot chart, one rate cut is expected before the end of 2024 and two more in 2025.

Source: CME FedWatch

As bond markets are always forward-looking, newly issued bonds would thus be issued at a lower yield than now. This would likely result in a lower overall return from Chocolate Finance’s underlying bond funds.

Thus, it is highly unlikely that Chocolate Finance would continue spending its cash balances to top up till a 4.2% return for their customers.

Comparison of Chocolate Finance against similar market products

Before thinking of putting your money with Chocolate Finance, it’s also good to consider what other options are available.

Thus, I decided to compare the returns of various popular money market funds in the market.

We can see that Chocolate Finance currently offers the highest return out of most money market options, except for Moomoo Cash Plus which has a promotional rate of 6.8%.

Comparing the two, I think Chocolate Finance stands out due to its no-frills 4.2% returns on the first $20,000. Moomoo Cash Plus promotional 6.8% return is applicable only for new users and there is also a 30-day holding period.


So should you put your money into Chocolate Finance?

I always believe in the saying make hay when the sun shines.

Personally, I would be putting up to $20,000 into Chocolate Finance till the qualifying period ends. I think the 4.2% return is quite attractive amongst other similar market products and I feel that there are also enough safeguards over my money with Chocolate Finance.

Whether I would keep my money in Chocolate Finance after the qualifying period ends would solely depend on the returns I would be getting then. But I guess that’s for me to assess again in the future.

If you are interested in putting your money with Chocolate Finance, you can input my referral link: (disclaimer: I get $5 for every individual that uses the link and transfer funds into Chocolate Finance) after you have downloaded the app. Otherwise, you would be placed on a waitlist till Chocolate Finance readily accepts new customers.

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