THE rally in equity markets powered funds approved under the Central Provident Fund Investment Scheme (CPFIS) up 10.73 per cent last year.
The result pipped the 10.35 per cent returns recorded for 2012.
Average returns for the fourth quarter were particularly buoyant, rising 3.69 per cent for the final three months of last year.
Fund researcher Lipper, which is tasked with monitoring the performance of all CPFIS funds, noted that the bullish sentiment, particularly in developed markets, was the driving force behind the growth.
This was reflected in the MSCI World Index, the key benchmark stock index, which rose 31.65 per cent in 2013.
Investors poured money into markets in the United States and Europe on brighter economic outlooks and cheaper valuations of stocks.
The US attracted about US$563 billion (S$715 billion) of fund inflow last year, while Europe saw a net positive flow of around US$163 billion. By comparison, Japan pulled in just US$50 billion and emerging Asian markets about US$37 billion.
Conversely, the better growth prospects led investors to move their funds out of bonds, which provide safer and lower rates of returns.
The key benchmark - the Citigroup World Government Bond Index - dropped 0.77 per cent.
That meant that CPFIS equity funds, which rose 14.41 per cent on average, outperformed bond funds, which fell 1.04 per cent.
Mr Xav Feng, head of Asia-Pacific research for Lipper, pointed out that expectations of the US Federal Reserve's tapering of its massive bond-buying programme compressed yields.
"Also, bond funds have already enjoyed four or five consecutive years of good performance since 2009, so it started to change and became one of the worst performers," he added.
Investors who used their CPF savings to buy only unit trusts would have been marginally better off than those who bought investment-linked insurance products.
CPF-approved unit trusts increased by 11.93 per cent last year while investment-linked insurance products added 9.91 per cent.
Though investors can get better returns from the CPFIS funds compared with leaving their savings with the CPF Board, non-CPF funds registered for sale in Singapore did even better.
There were 2,842 primary, non-CPF approved funds that gave an average return of 13.14 per cent last year.
Fundsupermart general manager Wong Sui Jau said such non-CPF-approved funds could afford to take on higher risks than the CPF-approved ones.
"A majority of those non-CPF- approved funds are very focused on European and US equities, which did very well last year," Mr Wong noted.
There were 285 CPF-approved funds as at the end of Dec 31. These are expected to be well-diversified funds with low investment costs, good performance records and have robust processes in place.