19 June 2017

Not Worth to Invest using our EPF money ???

Recently, there is an article by Chinese newspaper saying that more than half of the unit trust funds cannot beat EPF dividend rate. This has created a lot of doubts in the mind of EPF MIS investors. Is it true?

Since 1997, the scheme was rolled out by EPF with the approval from the government to let members have the choice to determine their retirement funds investment. Having said so, there is some restriction on the investment withdrawal and subjected to review periodically. The approved funds under EPF MIS has to be reviewed yearly by EPF team based on certain criteria to be met, such as funds' return performances and its' consistency.

Click here to find out the rules of EPF-MIS withdrawal.

  1. High entry fee ???
    Flat 3% entry fee or sales charge was being imposed for every EPF MIS withdrawal. A major portion of this will goes to the agent who advises and help you to make the transaction.

    But, was it high? First, if you compare to cash investment (although investing into the same fund), there is an even higher sales charge normally ranging between 5% - 5.5%. Meaning, it's easily 40% lower if you're investing via EPF MIS.

    Secondly, the said entry fee is charged once only when you invest, not every year. Meaning, if you only invest once and never invest again for the next 30 years, the said 3% charges will effectively become 0.1% annually.

  2. Many people may ask: "What if I invest every year? Every time you also charging me leh. The 3% means a lot, you know?"
    This is a very common misunderstanding regarding the entry fee. Example, if you invest RM10,000 one lump sum vs RM1,000 every year for 10 years. What's the difference in terms of the 3% entry fee?

    The answer is NO different. The only different is pay now, or pay in later years.
    * Lump sum RM10,000 x 3% = RM300
    * RM1,000 x 3% x 10 years = RM300

  3. The underperformance of unit trust funds ???
    It depends on what type of funds you're choosing. For long-term investing (retirement planning), equity funds on average could generate higher than 6% or even 8% annualized return.

    * Kindly take note on the ANNUALISED RETURN for past 3 years period (not total return).

  4. Not worth to invest via EPF MIS if the return was just 1% or 2% higher ???
    Licensed financial planner, Mr. Alex Yeoh commented that "Don't look down on the 1% or 2% different. It could make a miracle on your retirement funds." Please refer to below table on the different outcome from 6%, 7% and 8% annual return (20 years for initial capital of RM100,000 only). Surprise?

In conclusion, we must study and understand first before investing. Alternatively, we can seek advice from a financial planner, ask around different fund management companies instead (not only one company), before risking your hard retirement money.

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