PETALING JAYA: There have been mixed reactions from the experts on the Employees Provident Fund’s (EPF) move to encourage its members to invest a portion of their retirement savings into unit trusts via a simplified and cheaper online platform.
While some have welcomed the move as a catalyst for members to diversify their retirement fund investments, critics said it would increase the risk borne by the members as compared to the capital-guaranteed EPF savings, considering the volatile equity market currently.
There are also concerns on whether the move would cause retail investors to focus more on unit trusts, at a time when Bursa Malaysia is seeking to increase retail participation in the Malaysian equity universe.
The EPF, which is one of the world’s biggest retirement funds, had on Aug 19 launched the i-Invest platform to enable members below 55 years old to transfer up to 30% of the amount in excess of their basic savings under EPF Account 1 into EPF-approved unit trusts.
For context, the members are already allowed to invest a portion of their Account 1 savings in unit trusts through the members investment scheme (MIS). However, this can only be done via the offline method or through traditional transactions via agents, with a sales charge of 3%.
On the other hand, under i-Invest, only a sales charge ranging from zero to 0.5% of the transaction amount will be imposed.
In an email to StarBiz, Bursa Malaysia said that the i-Invest online platform “democratises access to investment for all Malaysians”.
It also said that the move to cap the sales charge at 0.5% makes unit trust investments cheaper for EPF members.
“Unit trust investment is generally for investors seeking to have a passive strategy on a long-term investment horizon, whereas the stock market is for investors who play an active role in their choice of investment and investment strategies.
“We do not expect this move to pose a challenge to our objective of growing retail participation in the stock market. Instead, Bursa Malaysia welcomes it, as it enhances the investment landscape of the nation and improves the investment outreach to Malaysians, ” stated the country’s stock exchange operator.
Universiti Malaya’s Social Wellbeing Research Centre director Emeritus Prof Datuk Norma Mansor called the i-Invest online platform a “progressive move”, pointing out that contributors would be able to earn higher returns under the new 0.5% sales charge compared to 3% for the offline method and through agents.
“Also, since it’s limited to certain unit trusts that are EPF-approved, it would reduce the risk of the members, ” she said.
Ian Wong, a licensed financial planner and a partner with IPPFA Sdn Bhd, expects an uptick in EPF members investing in unit trusts given the introduction of i-Invest.
However, he did not foresee a huge change.
“I usually don’t recommend clients to move EPF funds to unit trusts. It ‘fools’ people into thinking they’ve increased their investment, when it’s actually transferring wealth from the left pocket to the right pocket.
“The EPF provides very good returns for its risk level. On top of that, the stability and capital preservation provide peace of mind, as opposed to a potentially fluctuating fund.
“Using Account 1 savings to invest would require some research, time commitment and monitoring, which not all people want to do, ” he told StarBiz.
Meanwhile, a broker who declined to be quoted said that this new measure by the EPF would have no impact on the market.
“These are the superficial packaging and the excesses. For the Malaysian stock market to be vibrant, it has to first be structurally attractive, especially politically. Our market now lacks interest and momentum.
“You can reduce the fees to zero, but it won’t be enough to persuade investors to plough money into the market, ” he said.
He added that this move was being made when Malaysia is experiencing a huge outflow of foreign funds, coupled with a foreign shareholding level that was relatively low.
Coupled with the ongoing US-China trade war, the broker said many investors would prefer to forgo the cheaper fees and take less risk at a time like this.
Malaysia is the only market with a cumulative foreign net outflow in South-East Asia, with foreign investors being net sellers in 19 out of the 31 trading weeks in 2019 so far up to Aug 9.
As a result of the foreign selling, the FBM KLCI is down 5.68% on a year-to-date basis at its current level of 1,594.59 points.
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