Should You Boost Your EPF Savings With Unit Trust Investments?

Effective 1 January 2017, the Employees Provident Fund (EPF) has revised the quantum for basic savings  from RM196,800 to RM228,000. The amount will be set as the minimum target for EPF savings when members turn 55 years old.

EPF revised the amount in light of the rising cost of living, longer life expectancy and a higher inflation rate. The new quantum is benchmarked against the minimum pension for public sector staff, which has been raised from RM820 to RM950 per month for 20 years upon reaching the age of 55.

However the new quantum only refers to the basic savings considered sufficient to support a member’s basic retirement needs.

Is the new quantum enough to sustain you through retirement?

EPF provides wider pension coverage than countries such as Indonesia and India; in terms of pension contribution rates, Malaysia is the world’s fifth highest. Despite this, Malaysians are still likely to exhaust their entire EPF savings five years after the first withdrawal.

Alarmingly, those with RM50,000 saved in EPF will likely exhaust the entire amount in five years! One contributing factor is the low salary structure in the country, where 89% of the working population earn less than RM5,000.

Also affecting individual EPF contributions is the option to reduce the statutory contribution rate from 11% to 8%. This option is available from March 2016 to December 2017 only. 

On paper, the new quantum of RM950 per month looks sufficient. But this is only true if every single sen is spent on basic needs.

The harsh reality is that Malaysians spend 31.2% of their disposable income on food and food away from home, 23.9% on petrol, housing and utilities, and 14.6% on transport. Life after retirement is expensive! After taking all these lifestyle factors into consideration, RM950 might actually not be enough! What can you do about it?

Enter, EPF-approved unit trusts

One way to boost your chances of retirement survival is to grow your EPF contributions at a quicker rate. Did you know that EPF contributors can invest a portion of their savings into unit trust funds?

The scheme provides members with an option to enhance their retirement savings by placing a portion of their EPF savings in Account 1 to be invested in unit trusts or through private mandate managed by appointed Fund Managers Institutions (FMI) under the EPF Members Investment Scheme (EPF-MIS). However, contributors will need to have higher savings in their EPF accounts to participate in the EPF-MIS.

These funds need to achieve a three-year simple average consistent return rating of 2.00, sourced from mutual and hedge fund analytics provider Lipper, which has a scale of 1 to 5.

To invest or not to invest – that is the question

In February 2016, EPF announced a 6.40% dividend rate for 2015, with a total payout of RM38.24 billion. It was 0.35 percentage points less than in 2014, which was at 6.75%.

Whether the dividend was satisfactory depends on a few factors but in today’s volatile market, only a handful of funds can match the performance shown by EPF, given that it’s a capital guaranteed fund. Additionally, the guaranteed minimum rate of 2.5% makes EPF a secure long-term investment, especially for retirement savings.

There are a few ways to calculate dividends but the pressing question is: should one just rely on EPF dividends or make a portion of the savings “work harder” through unit trust funds?

Well, a simple comparison was done between the EPF dividend and top performing EPF-approved fund Kenanga Growth Fund.  It was found that Kenanga, based on the conservative historical annualised dividend rate of 8.00% still outperformed the historical dividend rates of EPF.

Remember: investing in unit trust funds come with additional fees and charges. For example, the Kenanga Growth Fund charges a 2% initial fee (based on FundSupermart discounted rate) and an annual expense ratio of 1.59%. The goods and services tax (GST) is also charged on these amounts. These eat into your returns, so instead of a 13% return over 1 year, it would be lower. However, the bulk of the fees are charged in the first year – the returns start picking back up and making up for the costs easily over the next couple of years.

Of course, leaving your money in your EPF account is certainly less risky, but you may risk not building enough of a nest egg to fund your golden years. Therefore, withdrawing a sum from your EPF savings to invest in a unit trust fund is indeed a good way to boost your retirement savings.

How it works

• Effective January 1, 2017, members are allowed to invest up to 30% of excess savings, compared to the previous 20% limit.
• Use the basic savings guide to determine the amount permitted to be transferred for investment under the scheme.
• Members must also be below 55 years old at date of application.
• The minimum amount of investment under the unit trust mandate is RM1,000 while for the private mandate, it may require a larger sum of money.
• Once members fulfil eligibility, they can choose their desired funds. Of the 336 funds listed under the scheme, 220 funds are qualified to be offered for period 2015/2016.
• Members are not allowed to withdraw any amount from the money invested through the FMI.
• EPF will release its control on the invested amount by the FMI when a member reaches age 55 or has made full withdrawal under leaving the country, incapacitation, pensionable employees and death withdrawals.
• Claims or resale of the invested units will be managed by the member or next-of-kin directly with the FMI.

Sources: The Star and EPF.

The rule of thumb for investing is to start as early as possible, and this also applies to EPF-approved unit trust funds. Unit trust investments are known for their long-term value; usually up to five years or longer.

For EPF members, they have the added advantage of being able to familiarise themselves with the track record of appointed fund managers before making their decisions.

Perhaps the first step you can take is to monitor your EPF contributions and growth. Obtaining the latest statement can be done online through i-Akaun at myEPF website.

Alternatively, members can obtain their statement via EPF kiosks or visit any EPF branches.  So, are you going to boost your retirement funds by shifting some of your EPF money into approved unit trust funds? The answer starts with you!

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Unlock the Potential Value of Your Home

Before you get carried away with renovations and install a sauna in your bathroom, ask yourself if you are planning to sell your property in the near future. Will these renovations ultimately increase the value of your home?

With the rise of property prices showing little signs of slowing, upgrading your home is seen as a viable option to many who are priced out of the market. You may want to bring your home up to date rather than buy a new one. According to the National Property Information Centre (NAPIC), between 2008 and 2014, home prices had been steadily rising. For the last 10 years, the compounded annual growth rate of house prices shot up from 3.1% to 10.1%

Have a look at these suggestions that may help you fetch higher returns and get the most bang out of your ‘ringgit’.

Declutter and research

If you have decided it’s time to upgrade your home for comfier living or for selling, and have put money aside for this purpose, then there are a few steps to take note of.

First off, do a full-blown spring clean of your home and throw out all household items and clutter that you haven’t touched within one year. The less stuff you own the less storage space you need, and hence the more money you save. Once you have decluttered, you can move on to fixing those pesky issues plaguing your property. These problems can be minor like broken door handles, missing parquet flooring, and scribbled walls. While major fixes could be needed for electrical rewiring, roof leakages, and termite infestations.

Do your research and find out the costs involved in hiring someone to attend to all these problems. A great tip is using service websites that provide contacts for professionals such as electricians, contractors, landscapers, and carpenters. You can get free quotations and find out how other users have rated the work rendered as well as recommendations. Some sites have promotional discount codes that can save you, even more, money by hiring professionals through them.  Check out Recomn.com and Kaodim.com to name a few.

TIP: For newbie renovators, it is best to hire out the bigger ‘fixes’. Get a few quotations from contractors and their portfolio of past work if possible, try using Recomn.com or Kaodim.com for starters. Choose the one that fits in with your budget and timeframe.

Don’t forget strata properties usually only allow renovation work in the weekdays and have specific time slots for drilling and hacking. Planning is crucial to getting the job done on time.

Refresh interiors and exteriors

Tackle one of the first things buyers will see when they visit your home, the paint job. Paint the walls inside your home for an instant refresh, and don’t forget to patch up any unsightly holes on them beforehand. If you have a landed property, it may be time to touch up the exterior walls. Peeling paint is a turn off to potential buyers. Don’t skimp on the paint quality either, you want the paint job to last throughout major downpours. If you hire out the job you could be paying in excess of RM7,000, half of which is labour alone.

This is an area where you could choose to save on labour costs by DIY-ing. Call in favours from friends and family and hand out paintbrushes and rollers. You can even make a party out of it!

Identify key areas due for upgrade: Kitchens and Bathrooms

If you can’t afford a top to toe renovation, focus on key areas of the property.

Two main value-adds in a property are the kitchen and bathrooms. If these rooms haven’t been touched since the 90s, 80s or even the 70s, it might be a good idea to give them a makeover. As a general rule of thumb, a kitchen renovation should be 10-15% of the value of the home; if your home is valued at RM 400,000, keep the costs to RM40,000-RM60,000.

Check to see if the rooms are still functional and if a simple facelift will do, or if you need a total gut job. For kitchens, you could replace the sink and faucet for easy, inexpensive upgrades. You can even take the opportunity to install energy efficient appliances and LED lights, saving you money in electricity bills. For example, current energy efficient refrigerators use 40% less energy than conventional models that were made in 2001.

Major renovations include hacking outdated wall and floor tiles as well as installing a backsplash. This could cost anywhere between RM1,000 to RM6,000 depending on kitchen size. You may even have a wet and dry kitchen to plan for.

Replacing the kitchen cabinets and countertops will also take a big chunk of your budget. If you fancy a nice quartz counter, it could set u back RM200 per square foot. With a 2ft. depth and an 8ft. counter this could come up to RM3,200 for quartz alone, not including installation.

TIP: As a general rule, new cabinetry should not cost more than one-third of your overall budget for the kitchen.

Choose the finishes wisely as cheapest doesn’t mean most long lasting.  There are newer, innovative storage systems out there like pull out drawers that can hold a bag of rice. You will have to pay more, but in the long run, function and time saved wins. A well planned, functional kitchen will not only be appealing to potential buyers but also for your own enjoyment. Keep in mind the kitchen triangle of hob, fridge and sink and ensure they are not too far apart from one another.

Bathrooms that are clean and in working order is a must! If you have low water pressure or have mould issues due to lack of ventilation, or you want to get rid of that dingy avocado green bathtub, it’s time to renovate! Bright and airy bathrooms with clean, timeless designs should appeal to a wide range of buyers.

For simple updates that will not dent the budget, you can upgrade the fixtures. For a cohesive refresh, try swapping out faucets, towel racks, and toilet paper holders for new ones in the same finish (chrome, brushed nickel, etc). Have a look at websites such as Lazada, Mudah and eBay for deals on fixtures. Another easy fix is to change the mouldy sealant or caulking around loos, sinks, and showers. This is a cheap upgrade that costs around RM100 for a plumber to do per area.

If you are looking at major fixes like extending the bathroom, changing tiles, or adding a double sink vanity, do seek professional advice. To save some money, you could buy your own floor and wall tiles, as well as toilet bowls and sinks. This will avoid markups and you just pay for installation. Try going to major renovation/furniture exhibitions held throughout the year for even better deals and event freebies.

TIP: Whatever the function you desire, as a general rule, keep the bathroom budget within 5-10% of your home’s value to control costs.

If you are planning to sell off your property in the next 5 years, choose wisely and focus on the key areas to renovate. Transform your home to a clean, and problem-free one with refreshed paint and upgraded rooms. By giving your home a facelift, not only will your property stand out in the crowd, but it can also command a higher selling price.

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7 Tanda Anda Bakal Muflis

Rakyat Malaysia semakin terbeban dengan kos sara hidup yang meningkat, pertambahan tangga gaji yang perlahan, dan keperluan untuk menambah baik kefahaman kewangan. Menurut Malaysian Financial Planning Council (MFPC), seramai 22, 663 rakyat Malaysia berusia bawah 35 tahun telah diisytiharkan muflis antara 2011 hingga 2015.

Ini bermakna sekitar 15 orang diisytiharkan muflis setiap hari dalam tempoh 4 tahun tersebut. Menurut MFPC juga, kebanyakan individidu yang diisytiharkan muflis berpunca dari kegagalan untuk mengurus pendapatan mereka dan tidak memahami kepentingan pengurusan kewangan.

Generasi muda Malaysia tidak bersedia untuk berhadapan dengan beban hutang serta tidak bertanggungjawab dalam mengurus kewangan.

–Naib Presiden MFPC, Michael Kok Fook

Ia menyedihkan apabila ramai rakyat Malaysia dibebani hutang yang tinggi sebaik sahaja menamatkan pelajaran di kolej atau universiti. Lebih teruk apabila mereka tidak sedar tentang tanda masalah kewangan sehingga ia sudah terlambat. Tanpa panduan yang betul, masalah ini akan bertambah buruk.

Mari kita lihat tanda amaran bahawa anda bakal jatuh muflis. Ketahui tanda tersebut sebelum terlambat!

Menggunakan kad kredit sehingga had kredit dan tidak mampu membuat bayaran minima

Pada kadar purata had kredit dari RM 8,000 sehingga RM 30,000, jika anda sentiasa berbelanja sehingga mencecah had kredit tersebut selama sekurang-kurangnya 6 bulan berturut-turut, ini merupakan petanda buruk bahawa anda tidak melangsaikan hutang anda pada kadar masa berpatutan. Pihak bank akan mengenakan faedah ke baki tertunggak anda. Lebih teruk, anda tidak mampu membayar bayaran minimum bulanan yang dikenakan, (kebiasaannya 5% dari baki tertunggak) walaupun hanya untuk sebulan.

Jika anda membayar bayaran minima setiap bulan sekalipun, anda tidak harus berasa bangga. Tahukah bahawa jika anda hanya membuat bayaran minima bulanan, ia akan mengambil hampir 10 tahun untuk melangsaikan baki tertunggak tersebut. Caj faedah yang dikenakan juga boleh mencecah RM 3,382! Anda boleh membuat pengiraan untuk membayar balik hutang kad kredit anda menggunakan kalkulator ini

Tip: Ada 2 strategi utama untuk membantu melangsaikan baki tertunggak kad kredit anda. Pertama, utamakan baki tertunggak kad kredit yang memiliki kadar faedah tertinggi. Walaupun cara ini mengambil masa yang lebih lama, anda akan mara kehadapan lebih cepat dari segi kewangan kerana kadar faedah yang tinggi akan menjejaskan anda. Oleh itu, tumpukan perhatian untuk langsaikan hutang yang berfaedah tinggi.

Cara yang kedua pula digelar ‘snowball effect’. Ia menumpukan perhatian untuk melangsaikan hutang terendah terlebih dahulu, dan anda akan mempunyai lebih wang untuk melangsaikan hutang yang lebih besar.

Selain itu, cuba untuk hadkan penggunaan kad kredit sehingga 30% – 40% dari had kredit anda setiap bulan. Anda juga boleh memilih untuk membuat pindahan baki (balance transfer) ke kad kredit dengan 0% kadar faedah, atau kadar faedah yang lebih rendah dari kad kredit anda.

Anda terlepas membuat bayaran bulanan kerana hutang anda terlalu tinggi

Jika anda menghadapi kesukaran untuk membayar bil bulanan dan sering terlepas membuat bayaran bulanan (ansuran, pinjaman, dan lain-lain) untuk 2 bulan berturut-turut, ini merupakan permulaan kepada masalah kewangan. Anda mungkin bakal menerima panggilan telefon atau amaran dari pemiutang yang menandakan hutang anda telah terlalu tinggi.

Tip: Lihat alternatif pinjaman peribadi untuk bantu anda menyatukan dan melangsaikan hutang, selain cuba dapatkan pendapatan sambilan.

Aset anda telah atau bakal ditarik balik

Selain perlu membayar faedah yang tinggi serta bayaran penalti, anda bakal berhadapan risiko rumah atau kereta anda ditarik sekiranya selalu lambat membuat pembayaran bulanan. Jika anda membeli aset tersebut melalui pinjaman, aset tersebut bukan kepunyaan anda, tetapi milik pihak bank sehingga anda langsaikan pembayaran hutang. Gagal untuk membuat bayaran akan menyebabkan bank berhak untuk menarik balik aset tersebut.

Tip: Jangan beli hartanah atau kereta dengan terburu-buru. Kaji terlebih dahulu nisbah hutang:pendapatan anda. Jika anda berkemampuan, anda boleh teruskan hasrat anda. Sebagai panduan asas, nisbah antara pendapatan dan hutang anda tidak boleh melebihi 50% jika anda masih tidak membuat sebarang pinjaman. Jika ia telah mencecah 50%, anda tidak mampu untuk membuat pinjaman dan seharusnya fokus terlebih dahulu untuk melangsaikan hutang.

Anda mempunyai rekod kredit yang buruk

Antara tanda anda bakal diisytihar muflis sebenarnya boleh dilihat dengan jelas melalui rekod kredit anda. Ketahui kedudukan rekod kredit anda dari CCRIS, CTOS atau RAMCI dua kali setahun.  Laporan dari agensi tersebut boleh membantu anda untuk memeriksa segala hutang, bayaran tertunggak, kes mahkamah serta permohonan produk kredit yang anda telah lakukan dalam tempoh 12 bulan lepas. Jika anda menghadapi risiko muflis, rekod kredit anda akan berasa didalam ‘zon merah’ dan tidak berkualiti.

Tip: Dapatkan panduan dari agensi tersebut untuk menambahbaik rekod kredit anda. Seperti yang telah dibincangkan sebelum ini, utamakan hutang dengan kadar faedah yang tinggi terlebih dahulu, gunakan fungsi pindahan baki untuk langsaikan hutang kad kredit dan pinjaman peribadi untuk melangsaikan hutang.

Anda membuat pindahan had kredit ke tunai kerana kurang cash flow

Ini merupakan amaran terbesar bagi mereka yang boros berbelanja. Tindakan ini akan memakan diri anda apabila penyata kad kredit tiba nanti, kerana ianya akan dicatat dalam penyata tersebut.

Pindahan baki ke tunai biasanya merupakan pilihan terakhir jika anda terdesak memerlukan wang untuk tujuan kecemasan, dan sepatutnya dilangsaikan dalam tempoh 6 bulan.

Tip: Cuba cari kerja sambilan untuk menjana pendapatan tambahan. Selain itu, anda boleh memohon pinjaman peribadi dengan kelulusan segera, tetapi hati-hati dan ingat tentang nisbah hutang:pendapatan seperti yang dibincangkan diatas.

Anda tidak mempunyai simpanan

Ini merupakan satu lagi tanda besar anda bakal berhadapan masalah kewangan. Jika boleh, anda sepatutnya mempunyai simpanan yang berjumlah antara 3-6 gaji bulanan anda untuk tujuan kecemasan. Jika boleh, peruntukkan juga sedikit simpanan untuk tujuan pelaburan (jangka pendek, sederhana dan panjang).

Tetapi, jika anda tidak boleh mempunyai simpanan dan baki akaun bank anda sering hampir ‘kering’ kerana membayar hutang, anda amat perlukan bantuan.

Tip: Ubah gaya hidup anda dan mula menyimpan wang, walaupun dengan jumlah sekecil RM 100. Anda juga perlu berusaha untuk lebih mahir dan maju dalam kerjaya anda kerana ia merupakan salah satu cara untuk meningkatkan pendapatan bulanan, selain mencari kerja sambilan.

Hutang berjumlah lebih dari RM 30,000

Walaupun anda mempunyai hutang berjumlah lebih dari RM30,000, anda tidak akan diisytiharkan muflis jika anda boleh membuat sekurang-kurangnya bayaran minima setiap bulan. Jika anda menghadapi masalah, perintah mahkamah akan dikeluarkan sebelum anda diisytiharkan muflis. Faktor berikut akan disemak untuk mengisytiharkan seseorang itu muflis:

• Tidak mampu membayar hutang dengan jumlah sekurang-kurangnya RM 30,000.
• Hutang tersebut telah disahkan (liquidated sum)
• Hutang tersebut tertunggak selama 6 bulan
• Penghutang tinggal di Malaysia sekurang-kurangnya setahun.

Tip: Terus bayar dan langsaikan hutang anda, dan elakkan dari terus berhutang.

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Tame the Inflation Monster

According to the Malay Mail Online, the current inflation rate is historically low at about 1.8% after having peaked at 4.2% in February 2016. While economists stick to this statement, Malaysian citizens experience a different reality where prices are not just increasing moderately, but strongly. In order to enable you to understand such difference, it is important to learn the meaning of inflation and how it is calculated.

Why does money exist?

Initially, the economy was based on trade. For example, 1kg of bread could be traded for 2kg of rice. But what would someone with bread offer to his barber for a haircut? The barber would not be able to take, for example, 5kg of bread, as he would have no need for that amount of bread. Therefore, money was introduced to facilitate trade. Generally, money has 3 functions: medium of exchange to standardise trade, store of value as it is easier to store coins than kilograms of rice, and a unit of account to make calculations easier with a standardised base.

What is inflation?

Inflation means that the prices of goods and services generally increase, instead of the prices of a single good or service. If inflation occurs, the buying power of RM1 decreases which means that you can buy less with this amount of money.

In Malaysia, inflation is measured by a consumer price index (CPI). The index is calculated by taking price changes for a pre-defined basket of goods and services. As a next step, all price changes will be averaged and the result will be the CPI of a certain year. In Malaysia, the products inside the basket were determined by the 2014 Household Expenditure Survey, indicating that all items are used on a daily basis in Malaysia. In total, the Malaysian CPI includes 512 items of which 214 are food and beverages.

What awakes the inflation monster?

If inflation increases, salaries seldom increase directly by the same amount. People with lower incomes especially suffer from this development, as they won’t be able to buy as much. If there is too much money in any market, prices for goods and services will continue to increase as long as there is too much money. This effect can also be called the “Inflation Monster” because if the central bank were to put more money into the market, the inflation would continue to grow. If the central bank decreases the amount of money too heavily, poor people will suffer as well, as the prices will decrease by a fraction.

Takeaway: The inflation reflects the price level of a whole nation and a whole basket of goods and services. Therefore, it is not directly applicable to every single household as your individual basket could look quite different.

Is inflation really that bad?

According to the European Central Bank (ECB), consumer surveys often show, that people “feel” inflation to be higher than it is in reality. This feeling can be tracked down to a few human behaviours:

• Price increases catch our attention more than stable or declining prices.
• Price increases of products or services we use on a daily basis such as bread, petrol or bus tickets grab our attention more than other products. Therefore, we might think that inflation is higher than in reality because our assumptions are based on our personal, frequently used products.
• There are a lot of expenses that do not happen regularly such as holidays, cars or mobile phones. As a result, we are not checking the prices for these items regularly and might not be able to say if the prices for this particular item changed.
• Payments that are done by automatic bank transfers tend not to raise our suspicion for rising prices as they are directly debited from our accounts. We might not even notice small increases in prices.
• Inflation rates are annual but our memory goes back more than one year. As inflation is, up to certain point, helpful for growing an economy, we might be more negative than we should be. A healthy inflation of 2% yearly would add up to more than 20% in 10 years. 

Takeaway: Do not let your gut feelings influence your objectivity. Try to take a step back and think about whether your assumptions or expectations make sense and are rational.

How does the central bank control the inflation monster?

As already mentioned, the central bank can influence the amount of money that is in the market. The instrument to do so is the interest rate at which banks can lend money from the central bank. If the interest rate is lowered, it is cheaper for banks to borrow money and as a result credits will become cheaper. Thereby, more money will enter the market and inflation will increase. The other way around, if the central bank increases the interest rate, banks need to pay more for lending money from the central bank. Prices for credits will increase, less money will be requested and inflation will decrease.

How to know if the Inflation Monster is chasing you

Create your own basket of goods and services you buy for your household. To keep it simple this could be rice, bread, and eggs.

Then calculate the total amount spend on these products in one year. For example:

Year 0: 10kg of rice x 10 x RM20 = RM2,000; 1kg of bread x 52 weeks x RM9 = RM468; 1 pack of eggs (12) x 12 months x RM6 = RM72 for an average Malaysian family, which sums up to RM2,540. Track price developments for the products you have put into your basket on a monthly basis.

Add up all yearly prices and do the steps 1 and 2 for the next two years. The current year will be your base year.

Year 1: 10kg of rice x 10 x RM19 = RM1,900; 1kg of bread x 52 weeks x RM11 = RM572; 1 pack of eggs (12) x 12 months x RM8 = RM96, which sums up to RM2,568.

Year 2: 10kg of rice x 10 x RM20.5 = RM2,050; 1kg of bread x 52 weeks x RM11 = RM572; 1 pack of eggs (12) x 12 months x RM8 = RM96, which sums up to RM2,718.

Compare the prices from years 1 and 2 with your base year. An increase would mean that the Ringgit is losing buying power and a decrease would mean that the Ringgit is gaining buying power.

Year 1: RM 2,568 / RM2,540 x 100 = 101.10%

Inflation Rate: (101.10 – 100) / 100 x 100 = 1.10%

Year 2: RM 2,718 / RM2,540 x 100 = 107.01%

Inflation Rate (107.10 – 101.10) / 101.10 x 100 = 5.93%

This would tell us, that the inflation in Year 1 was relatively normal, but the inflation in year 2 was relatively high and the Inflation Monster appeared. Especially for year 2 actions are needed as the value of your money is decreasing. Some tips to help you save money can be found here. Further advice on how to deal with the Inflation Monster has been put together here.

In conclusion, it could be possible that the Inflation Monster is awake. But often it is not as bad as you “feel”. One way of how to tame the Monster by yourself could be to lower your expenses.

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