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EPF – LOWER YIELD, SAFE INVESTMENT
In the past five years, the Employment Provident Fund (EPF) has distributed an average dividend rate of 5.0%. The average inflation rate for the past five years is 3.4%. The average real dividend rate for the past five year was 1.7%.
As a national provident fund, the EPF’s primary investment objective is to seek a balance between profitability and prudence. Investments are made only at acceptable levels of risk and to ensure positive real rates of return in the long term. Key considerations in investment decisions include criteria on safety, stability, liquidity, and risk-adjusted returns. In order to meet its investment obligations, the EPF adheres to a disciplined investment procedure and guidelines. The EPF Fund Act 1991 is an act to enact the law relating to provident fund. It includes the monthly compulsory contribution from employers and employees. It also regulates the power and duties of the EPF board and investment panel in handling EPF monies on behalf of their members. All monies belonging to the fund are invested in accordance with the EPF Act 1991.
In order to achieve its objective, the EPF has designed a long-term strategy based on a prudent strategic asset allocation as follow:
| Asset Class | Strategic Asset Allocation (%) | Variation (%) |
| Malaysian Government Securities | 25 | 15 to 35 |
| Loans & Bonds | 25 | 15 to 35 |
| Money Market Instruments | 15 | 5 to 25 |
| Equities | 20 | 10 to 30 |
| Property | 5 | 0 to 10 |
| Source: EPF, iFAST Compilations | ||
Historically, EPF had invested at least 70% into bond markets. As illustrated in Chart 2, EPF invested about 74% into bond market in 2008, with equity investment made up for only about 26%. With EPF’s rather conservative investments – mainly invested into safer asset classes, the return that investors are able to obtain would be lower. EPF is considered as risk-free investment. Under the EPF Act 1991, EPF is required to pay at least a minimum interest payment of 2.5% per year to its member. Hence, regardless of any economic circumstance, EPF members are eligible for at least 2.5% dividend payment per year. For conservative investors, leaving your monies in EPF accounts might be a good option.
For aggressive investors who are willing to take higher risk, investing into EPF approved funds can be a good option for potentially higher return.
EPF FUNDS PERFORMANCE – HIGHER RISK, HIGHER RETURN
Table 2: Selected EPF Funds Performance
| Annualised Return (%) | 1-year | 2-year | 3-year | 4-year | 5-year | Annualised Volatility |
| 32.8 | -5.7 | 21.7 | 22.0 | 16.6 | 25.4 | |
| 33.3 | 0.2 | 11.5 | 14.0 | 11.3 | 12.0 | |
| 23.6 | -8.3 | 14.1 | 17.5 | 10.4 | 17.6 | |
| 13.6 | -4.7 | 13.1 | 21.4 | NA | 14.5 | |
| 22.1 | -3.7 | 11.0 | 19.9 | 15.0 | 12.8 |
Table 2 illustrated the annualised return for selected EPF approved equity and balanced funds. OSK-UOB Smart Treasure Fund and Kenanga Growth Fund are funds mainly invest into Malaysia equity market, while OSK-UOB Emerging Opportunity Unit Trust is Malaysia equity fund which focuses on small to medium companies. OSK-UOB Growth And Income Focus Trust and OSK-UOB Smart Balanced Fund are balanced funds which invest into Malaysia equity and bond markets.
For 5-year annualised return, all funds recorded annualised return of above 10%, higher than the average dividend distribution of 5% for the past five years. During a market bull-run, which happened in 2009 (Referring to 1-year performance comparison), Malaysia equity funds were able to deliver return of above 20%. Malaysia balanced funds delivered returns ranging from 13.6% to 22.1% within the same period.
However, investors should take note that investing into equity or balanced unit trusts involves high volatility. Annualised volatility for the five funds was ranging from 12.0% to 25.4%. Higher volatility reflected higher risk exposure. In 2008 (Referring to 2-year performance comparison), when Malaysia equity market collapsed (with FBMKLCI contracted by 39.3%), except for Kenanga Growth Fund which registered an annualised return of 0.2%, the four other funds were posting negative annualised return ranging from -3.7% to -8.3%.
UNIT TRUST INVESTMENT VIA EPF
EPF members are eligible to withdraw their EPF savings to make their own investment for potentially higher returns. Effective from 1 February 2008, EPF members are able to withdraw a maximum of 20% of their credit in excess of Basic Savings in Account 1 to invest into the approved fund managers. The required Basis Savings in Account 1 is a compulsory minimum savings available in Account 1. EPF members at different age profiles are required to have various minimum savings deposited in their Account 1 as follow:
| Age
| Basic Savings
| Age
| Basic Saving
|
| 18 | 1,000 | 37 | 34,000 |
| 19 | 2,000 | 38 | 37,000 |
| 20 | 3,000 | 39 | 41,000 |
| 21 | 4,000 | 40 | 44,000 |
| 22 | 5,000 | 41 | 48,000 |
| 23 | 7,000 | 42 | 51,000 |
| 24 | 8,000 | 43 | 55,000 |
| 25 | 9,000 | 44 | 59,000 |
| 26 | 11,000 | 45 | 64,000 |
| 27 | 12,000 | 46 | 68,000 |
| 28 | 14,000 | 47 | 73,000 |
| 29 | 16,000 | 48 | 78,000 |
| 30 | 18,000 | 49 | 84,000 |
| 31 | 20,000 | 50 | 90,000 |
| 32 | 22,000 | 51 | 96,000 |
| 33 | 24,000 | 52 | 102,000 |
| 34 | 26,000 | 53 | 109,000 |
| 35 | 29,000 | 54 | 116,000 |
| 36 | 32,000 | 55 | 120,000 |
| Source: EPF, iFAST Compilations | |||
For example, a 30-year old EPF member who has RM30,000 in his EPF account. The excess of Basic Savings in Account 1 would be RM12,000. The allowable withdrawal for member’s investment will be (RM12,000 * 20%) RM2,400. The minimum amount of savings that can be withdrawn is RM1,000 and can be made at intervals of three months from the last transfer, subject to the availability of the Basic Savings requirement in Account 1.
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