EPF, Unit Trusts in Opinions, The Star

While reading The Star this morning after breakfast, I found this message in the Opinion section:

Be aware of risks when investing in unit trusts

WE REFER to the letter, “EPF should not allow use of funds to buy unit trusts” (The Star, Feb 22).

The Employees Provident Fund is sympathetic to Sad Retiree’s experience. While it is the EPF’s responsibility to ensure that members have sufficient funds for their basic retirement needs, it must also be responsive to the needs of its members who wish to diversify their investment options.

The members’ investment withdrawal was designed to give members, who already have a sufficient amount in their EPF savings, an alternative to invest part of their savings in unit trusts through approved fund managers.

However, members must be reminded that investments made on their own, while potentially able to generate higher returns, are also subject to higher risks.

The choice to apply for the withdrawal depends on each individual’s risk-return profile. Members who are not confident about investing on their own should always opt to leave their savings with the EPF.

The EPF would like to encourage members who are considering the members’ investment withdrawal to seek professional advice and be fully aware of all the risks involved before making a decision.

NIK AFFENDI JAAFAR, Senior Manager, Public Relations, Employees Provident Fund, Kuala Lumpur.

It was a response to another message in the Opinion published last Wednesday:

EPF should not allow use of funds to buy unit trusts

IT is about time the Employees Provident Fund withdrew the provision allowing members to use their EPF funds to buy unit trusts.

This is to safeguard ignorant investors from losing their life savings.

Investing in unit trusts is the same as dabbling in the share market. In fact, it is worse because the investors are at the mercy of a third party (the fund managers) who are supposed to make money for them by investing prudently in the share market and such.

I lost about RM30,000 using my EPF fund to buy unit trusts the values of which have mostly dwindled, and that, too, from reputable unit trust companies.

I invested in unit trusts 10 years ago, and now approaching 55, I feel so sad with the loss.

After all, the role of the EPF is to protect contributors and ensure they have sufficient funds for retirement.

SAD RETIREE, Kuala Lumpur

I believe it is the duty of the EPF (Employees Provident Fund) organization to advise their members on the risks involved in taking out their hard earned money and hand it to these eager unit trust agents. Some of the these unsuspecting souls could be sold easily to the sweet promise of high returns promised to them. It is not in the agents’ interest to dwell too much on the risks because they are after the commission from the sales. Of course, we are expected to read the prospectus completely, but how many of us read all of the fine prints before signing above the dotted lines?

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Mutual Fund, Anyone?

It didn’t take me too long to transition from being a sceptic on mutual/trust funds to receptive to being a sceptic again. This happens after I have read completely the prospectus and realized how much I would make the agent richer and, in the process, myself poorer.

You see, in Malaysia, I could use major portion of your retirement plan (EPF — Employees Provident Fund) in an approved scheme to invest in unit trust funds. The problem I quickly see is the service charge at the time when I buy units from a fund could be as high as 7%. So the minute I withdraw my hard-earned EPF money, I am poorer my a large amount. Another thing I could not accept is up to 5% of the sales proceed (my money) will go to the agent as sales commission!

Let’s put this whole thing in perspective. If I can withdraw RM100,000 into this investment scheme, I will be immediately RM7,000 poorer. And the worse thing I will make the agent RM5,000 richer. Instantly. Now let assume that, yearly, this agent can get 40 unsuspecting clients (about 3 person a month) who can “invest” this kind of money. He will net RM200,000 a year! That is one BMW 3-series in a year time. Cash! (Ok, maybe not a BMW but a Saab would be well within reach). How long would it take for a trust fund to give me a 100% return on my RM100,000 investment?

So I would be skeptical that this unit trust agent focus would be on getting me to become rich but rather on getting new “investors” as quickly as possible because the lucrative sales commission is just too good. I think the presenter in one of the free investment seminars my wife and I attended 2 or 3 years back was right — do not put too much of your trust in unit trust funds.

My first blog ever!

This is my first attempt at blogging and I am a software developer in my late 30s! I have been resisting it for so long. Let see what I will come up with it…