Using Epf To Invest Into Unit Trust Funds

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News that EPF will be releasing e-MIS to allow Malaysians to conveniently invest into unit trust using their EPF (KWSP) savings online has been a subject of heavy discussion within the unit trust consultants community. Majority of unit trust consultants whom have been serving clients via investment advisory as well as manual submissions of EPF investment form in exchange of a 3% sales charge fee stand to lose out most in this latest shift in convenience of investing unit trust through EPF's e-MIS. 
It has been been stated in a local publication that Malaysians whom utilized the online platform to withdraw their EPF savings to invest into unit trust will only be charged a fees of 0.5%. The risk of doing so is that Malaysians will not have the privilege or receiving investment advisory from a dedicated unit trust consultant. 
We may all get excited about saving on sales charge of EPF investment but I truly believe we should be educated on the very basic pros and cons of withdrawing your EPF savings to invest into Unit Trust funds. First, let's go through the fundamental benefits that you will always hear from your unit trust consultant when it comes to withdrawing your EPF savings to invest unit trust

Pro Reason 1: Unit Trust returns tend to outperform EPF annual dividend rate!If you look at the historical dividend rates of EPF, it has always been a steady SINGLE DIGIT (%) dividend as shown here. There is nothing sexy about the dividend payout of EPF which has been consistently hovering between 5% - 7% over the past 10 years. Unit Trust Consultants over the years have always compared the returns of Unit Trust fund on a yearly basis versus that of EPF dividend, and in most cases when unit trust funds are generating double digit returns for a particular year, the potential of clients withdrawing EPF to invest into unit trust funds are higher. 
This scenario of double digit returns of unit trust funds were true especially during the bullish years of the Malaysia stock market between 2009 to 2015. Shown below is a historical data of the Top 5 Malaysia Equity Fund as of Feb 2015 where notice that the 5 Year Annualised (%) Returns of these funds range between 15% to 22% per year!!

Malaysia Equity Funds Annualised % Returns as of Feb 2015It was certainly a great time for Malaysians to regularly withdraw their EPF savings to invest into these funds! Forget bout the single digit dividends of EPF which will take forever to grow your retirement savings, so they say

Pro Reason 2: Negative Returns of Unit Trust Funds is a good opportunity to Dollar Cost Average using your EPF savingsThis has always been the reason unit trust consultants give when a fund performs poorly. A negative return is an opportunity for the investor to invest more and acquire more units at lower prices as how many long term successful passive unit trust investing has been shown to work. The concept of Dollar Cost Averaging (DCA) strategy has always been proven to work if you are into long term passive investing albeit with one caveat to this. In order for the DCA strategy to work, the unit trust fund that an investor chooses to invest into is also pivotal to the success

Having a good investment strategy such as DCA yet choosing a poor performing unit trust fund will most likely also reap poor results as the unit trust fund could potentially incur major losses (during a bear market) as well as unable to take advantage of reaping big returns in a bull market. 
This is why over the years, I have written articles that encourage investors to invest passively yet aggressively pursue your rights to good advisory as well as proper investment recommendations from your financial advisor/consultant to ensure he or she is always taking care of your investment interest. This is your investor right as an investor to be given such advisory in return of the sales charges that you are already paying your advisor or consultant.

Pro Reason 3: Invest into other specific country/sector markets that are not covered by EPF investment
This is least used reason given by Unit Trust consultants yet is the most logical reason why an investor would decide to withdraw part of their EPF savings to invest into. I'll give you very strong reason example on why this strategy can be beneficial given the right selection of sector of country to invest in.

Let's take the sector based shariah compliant Precious Metal Securities fund as an example. This fund which is under AmFunds Management Bhd is an EPF approved unit trust fund that invest specifically into Gold Mining stocks. Say for example an investor whom sees an opportunity in gold decides to invest into this fund using his or her EPF savings in Sept 2018, he or she would have made +34.92% in less than a year as shown below:


On a longer horizon example, if the investor has been diligently investing into Precious Metal Securities via the same amount on a quarterly withdrawal from of his/her EPF savings, the total investment return between Jan 2017 to July 2019 for the investor would be +17.3%!

Summary of Part 1 of "Using EPF to Invest into Unit Trust Funds"
In Part 1 of the "Using EPF to Invest into Unit Trust Funds" series of blog post, I have explained the basic benefits of why investors are attracted to withdrawing their EPF savings to invest into unit trust funds.

In the coming future parts of the series of "Using EPF to Invest into Unit Trust Funds", I hope to cover the cons as well as the current state of approved unit trust funds versus that of EPF dividend returns. I also intend to release an in-depth analysis of how the funds in each category are performing versus that of EPF dividend returns.

So stay tune and do follow Invest Made Easy Facebook page for future updates!! 

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