No cash to invest?

No Cash? Wait a minute, have you forgotten about your Provident Fund? For Malaysian, we call it EPF (Employee Provident Fund). EPF is like Hong Kong’s MPFA (Mandatory Provident Fund Fund Schemes Authority) and Singapore’s CPF (Central Provident Fund), it is meant to be a form of savings for our old age.

*links: http://www.mpfa.org.hk/eindex.asp, http://mycpf.cpf.gov.sg/Members/home.htm, http://www.kwsp.gov.my

Malaysian’s EPF consists of 2 accounts, i.e. Account 1 and Account2. Account 1 has 70% of your funds and the remaining 30% is in Account 2. Malaysian EPF members are now allowed to withdraw a small part of the funds from Account 1 to invest in selective Unit Trust managed by Unit Trust Management Company.

It is solely up to you to decide what do you want to do with your money. I am not very sure about other country’s Provident Funds but for Malaysian, you have a choice. Of course, there are only a few selected Unit Trusts that we can invest with our EPF funds, usually less aggressive local Unit Trust. For example, Public Mutual Berhad’s Unit Trusts: Public Islamic Balanced Fund, Public Regular Savings Fund, Public Money Market Fund, etc.

EPF does provide dividend return, you may refer to the screen shot below for the previous EPF dividend return against inflation rates.

Question: How much can you withdraw from EPF’s Account 1?
Answer: 20% of the amount in excess of $50,000. In other words, you have to at least keep $50,000 in your Account 1.

Example 1:
Nicole has $60,000 in her Account 1, she can withdraw
$60,000 - $50,000 = $10,000
20% of $10,000 is $2,000

Example 2:
Priya has $40,000 in her Account 1, she is not qualified for the withdrawal as she has to keep minimum $50,000 in the account.

Example 3:
Jasmine has $120,000 in her Account 1, she can withdraw
$120,000 - $50,000 = $70,000
20% of $70,000 is $14,000

Question: How often can you withdraw from Account 1 for Unit Trust investment?
Answer: Once every 3 months.

Question: More question?
Answer: You may send an email to me: anson.chng@gmail.com and I will personally explain to you in detail!

***Next: Interested to invest in the region below?***

NAV

NAV is Net Asset Value. NAV is the total value of the fund's portfolio minus liabilities.

Usually, the NAV of a fund is calculated on a daily basis. You can get the NAV price on the UTMC’s website (examples: http://www.publicmutual.com.my, http://www.pacificmutual.com.my)

Unit Trust Management Company (UTMC) can choose to use are using Dual Pricing or Single Pricing method to display the “Price” to buy or sell. The main difference is either or not the Service Charge is included in the calculation. All UTMC in Malaysia is practicing Single Pricing now, no matter you buy or sell, you will refer to only 1 NAV price. However Service Charge calculation varies from UTMC to UTMC. In my previous blog, I have used the Buy and Sell of Unit Trust of Public Mutual Berhad as example.

***No Cash to invest?***

To buy and sell

To invest - Purchase
When you invest in Unit Trust, you do not hold any shares or bonds directly, you hold “units” of the funds. Your investment amount will be converted to number of units in that particular Unit Trust you invest in. So, how do you know the “Price” of the Unit Trust? You can get it from the Unit Trust Management Company’s website, newspapers or visit the company directly. Please note that the “Price” may not be the latest if you get it from newspaper or even website. We will discuss more about “Price” later. Lastly, there is definitely an upfront service charge – for Fund Manager’s management fee, Unit Trust Consultant’s commission and any other miscellaneous fees and charges.

Example: You invest $1000.00 in the Unit Trust ABC which the price per unit is $0.25. Assuming the Service Charge is 6.5%, how many units will you get?

Price per Unit $ 0.25, Service Charge 6.5%, Amount Paid $1000.00

Actual Amount Invested:
$1000 / 1.065
= $ 938.97

Unit hold:
$ 938.97 / $ 0.25
= 3755.88 units

Service Charge paid:
$1000 - $ 938.97
=$ 61.03

If you add both Actual Amount Invested and Service Charge Paid ($ 938.97 + $61.03), you will get the initial amount you paid: $1000.00.

Cooling-Off period
As individual investors, after you have purchased the Unit Trust, you will usually have a few business days of Cooling-Off period to cancel the purchase and get a full refund. You have to check with your Unit Trust Consultant on the Cooling-Off period and exercise your rights wisely.

To sell – Repurchase
When you want to “sell” your units of the funds to the Unit Trust Management Company (UTMC), you may do the redemption through Unit Trust Consultant or go to the UTMC directly. We call the redemption “Repurchase”. Please note that there is a cut-off time when you refer to the “Price”, before cut-off time you will refer to yesterday’s closing price, after cut-off time, you will refer to today’s closing price (which is still unknown at the time you “sell”). Usually, you will get the Sale Proceed in about 10 days, varies from UTMC to UTMC.

When you “sell” your units to the UTMC, there might or might not have Service Charges, please consult your Unit Trust Consultant for more information.

***NAV***

Strategy - Diversification

Different investor embraces different types of investment strategy. One of the famous ones is Diversification. This strategy is to reduce or minimize the risk exposed to one investment. Some investors Diversify to achieve a “Balance” in their different types of investment, if 1 investment fails, other investments are still making profit.

You can diversify your investment in order to achieve “don’t put all your eggs in one basket”. You can diversify your investments by different market and/or different investment types.

For instance, Lee and John want to diversify their investments, therefore they choose to invest in the Unit Trusts below:

Customer#1: Lee

• Public China Select Fund (Aggressive Equity Fund)
• Public Global Balanced Fund (Balanced Fund with Conservative to Moderate Risk Profile)
• Public Money Market Fund (Money Market Fund with Conservative Risk Profile)

Customer #2: Mohammad

• Public Islamic Bond Fund (Bond Fund with Conservative Risk Profile)
• Public Global Select Fund (Aggressive Equity Fund)

There are, however, some investors believe that they should put all the eggs in one basket in order to FOCUS. It really depends on individual if you want to diversify or focus.

***Next: To buy and sell***

How to start investing in Unit Trust?

1. Who and Where?

You can choose to visit a Bank or Unit Trust Management Company. Or more directly, talk to a UTC (Unit Trust Consultant, generally known as Unit Trust Agent). Make sure you choose the right person to manage the Unit Trust for you, do not choose the unqualified and irresponsible agent.

2. How to make decision?

• Understand your Risk Profile – Aggressive, Moderate or Conservative*
• According to your Risk Profile, choose the type of Unit Trust you want to invest – Equity, Balanced, Bond, Money Market, etc*
• Decide which market you want to go for, Asian, Far-East, Global, Local, etc*
  *please refer to my previous blog for details

3. What to prepare?

Usually photocopy of your Identity Card or Passport. And obviously, money! Either cash or cheque, my suggestion is to write a cheque.

4. How much?

Depends on the Unit Trust, some minimum entry is RM500, some RM1000.

5. Where to get money?

• Make sure you have extra money and you do not have outstanding balance in credit card! Someone who has outstanding balance in credit card asked if he should invest in Unit Trust. My answer to that person was obviously a “NO”!
• For Malaysian, if you have worked for quite some time, you can withdraw part of the money from EPF Account 1, I will share more about this later.

***Next: Strategies***

Why Unit Trust?

Unit Trust is always one of my top choices for investment. Here are some of the reasons:

1. Use the expert!
The experts here are referring to Fund Managers who manages the Unit Trust. They are full time experts who have the following to decide what to buy or sell AND when to buy or sell:

• Time
• Qualification
• Knowledge
• Skill
• Experience

2. Higher possibility for better return*
Comparing to conventional Bank’s Deposit products (which usually offer annual return of 0% - 3% ±), Unit Trust offers a better chance of getting much higher return over a period of time, however there is always risk in any investment. For your Fixed Deposit and Savings, one of the major risks is Inflation! For Unit Trust, there are some risks like Market Risk, etc. Example of the Unit Trusts’ average annual return:

Example #1: Public Money Market Fund (Conservative)
1 year (ended 31 Jan 2007) Average Annual Return of 3.21%^

Example #2: Public Islamic Balanced Fund (Conservative to Moderate)
1 year (ended 30 Nov 2006) Average Annual Return of 18.96%^

Example #3: Public Far-East Select Fund (Aggressive)
1 year (ended 31 May 2007) Average Annual Return of 38.74%^

*Important! Past performance of the funds is not an indication of future performance
^Note: Source of the data: “Master Prospectus of Public Series of Funds dated 1 July 2007 and expires on 29 April 2008” by Public Mutual Berhad.

3. Invest Abroad
It is either impossible or too tedious for us to invest abroad. On March 2005, Bank Negara Malaysia has liberalized the limits for investments abroad. UTMC (Unit Trust Management Company) is allowed to invest up to 30% of the total aggregate net asset value of funds managed. Some example of the Funds that have foreign investments:

Aggressive

• Public Global Select Fund
• Public China Select Fund
• Public Far-East Select Fund
• Public Regional Sector Fund

Moderate Risk

• Public Far-East Dividend Fund
• Public Islamic Asia Dividend Fund

Conservative to Moderate Risk

• Public Global Balanced Fund
• Public Far-East Balanced Fund

4. Other Financial Products
Financial product like Bonds issued by government or large corporate are not within our reach as retail investors because the minimum amount/requirement is very high (usually hundreds of thousands). Some example of the Funds that have investment in Bonds:

Conservative to Moderate Risk

• Public Balanced Fund
• Public Islamic Balanced Fund

Conservative

• Public Bond Fund
• Public Islamic Bond Fund

5. Can sell anytime!
If you want the sell your Unit Trust, the Unit Trust Management Company will definitely buy it back from you, this is applicable to most of the common types of Unit Trust. Sale proceed will be available in 10 days. Unlike stock market, if there is no buyer, you cannot sell your stocks at all.

*Note: All the Unit Trusts mentioned above are offered and managed by a wholly-owned subsidiary of Public Bank – Public Mutual Berhad (http://www.publicmutual.com.my).

***Next: How to start investing in Unit Trust?***

Types of Unit Trust

My very first investment was Unit Trust, back in year 2002. At that time, I did not understand Unit Trust so well like I do now. What I understood back then was just it’s a good savings and investment plan. My first Unit Trust was Public Mutual – Public Islamic Equity Funds. At that time, I did not bother to find out what would this Unit Trust invest in but I just believed that Public Mutual is a very good company and my money will be managed well.

Now that I have gained more knowledge about Unit Trust, I know that my first Unit Trust was the aggressive equity funds. Generally, we can categorize Unit Trust by Risk Profile and Investment composition.

Risk Profile

• Aggressive: Higher risk with potential higher return, meant for people with big risk appetite.
• Moderate: Medium risk with moderate return, meant for people who can take reasonable risk.
• Conservative: Low risk with fair return, meant for people who are risk averse.

Investment composition

• Equity: At least 65% of the funds are invested in stocks and the rest of the funds will be with other investment instruments like Bonds, etc. (Aggressive)
• Balanced: Funds will be equally split between stocks and other lower risk investment instruments. (Moderate)
• Bond: Main investment is with different type of Bonds, usually promise with fixed and steady interest income. (Moderate To Conservative)
• Money Market: Main investment is with financial instruments like Certificate Deposit, Treasury Bills, etc. (Conservative)

***Next: Why Unit Trust?***

What is Unit Trust?

To put it in layman’s terms, Unit Trust is a pool of funds invested by various investors and it is managed by professional Fund Manager. Fund Manager will provide the professional investment service to you and you pay them a reasonable fee.

Unit Trust is for people like you – with excessive cash but do not know what to do with it but still want to earn better returns than Bank’s Deposit Interest Rate. And,

• You do not know how to invest
• You do not know what to invest
• You do not know when to invest
• You do not know how to manage risk

To make life simple, let the professionals do the job by tapping on their investment knowledge, experience and skill.

Extra note: The term "Mutual Funds" is also widely used especially in the US. Unit Trust is more commonly used in European countries like the UK. The concept of Mutual Funds is similar to Unit Trust.

***Next: Types of Unit Trust.***