A look at the PRS Conservative funds

It is time for me to look at some of the PRS funds (due to taxes) and I thought that unlike last year, I want to do some research. Last year, I just went to a most convenient bank and picked an aggressive growth fund as I thought that with many years to reach 55 years old :), hence I might as well be slightly aggressive.

This year though, I wanted to take a back seat and be conservative (to also balance my investment in fund). This means that for this year I am for conservative funds perhaps. Taking a cue from AIA's Conservative funds (as below), a conservative fund basically invests 80% of the money into fixed income and money market instruments and remaining 20% into equity.

Fixed income as in the name is most of the time investment into bonds (usually high grade) while money markets are securities which are shorter time in nature and these are high grade securities. All in all, I expect to secure decent and above fixed deposit rates return. Add in the tax incentives, it should be good savings and return.

One way to look at which fund to choose is to look at its past performance (I know one should not measure performance on its past, but how else?). As PRS scheme is a new scheme for most of the funds, they have been in existence for slightly more than a year. These are what I have found - which is quite surprising. (Remember me saying I expect above FD type of return.)

CIMB Plus Islamic Conservative - 1 year return 2.8%

AMPRS - CONSERVATIVE FUND - CLASS D - 1 year return 1.6%

Affin Hwang Conservative - 1 year return 3.6%

AIA PAM - CONSERVATIVE - 1 year return 2.7%

Manulife Conservative PRS - 3.4%

RHB Conservative - 1 year return 3.2%

Manulife Shariah PRS - Conservative - 1 Year return 0.6%

Based on the above, among the conservative funds, it can be said that over a short 1 year period, the best performing one at 3.6% return is Affin Hwang while worst performing one is Manulife Shariah at 0.6% return. On average, these 7 funds I looked at provided 2.557%. If I were to compare against most of the fixed deposits, they provide return of between 3.2% to 3.4% over the last 1 year. Could I claim that these conservative funds underperformed?

In fact, if I were to eliminate the best and worst performing from the average, it is still giving average return of 2.74%.

The worrying thing is that these funds does not create much value, except for the government's incentive of tax deduction up to RM3000 invested. One can argue that we should not look at these funds over the short term. I agree as I myself pitch long term. But these are funds that largely invested into fixed income securities. Fixed income provide in most cases fixed return. Yes, they are tradeable in the secondary market, hence the fluctuation in prices, but aren't one been paid and taught how to look at the interest and bond market movement? In any case, these are conservative funds.

They are not creating value! To me. And without the incentives from government, these will not stick!

P.s. I did not include some of the funds e.g. Public Bank's which registered 3.41% return over the last 1 year.

Also the fund management guys will not like me, but these are FACTS!

Another place to look at the performance is through Morningstar i.e. here.

Budget 2014: Up to 61% tax incentives for youths through PRS

This is a guest article and the opinion is strictly from the writer.

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Now, I know Budget 2014 is almost 2 weeks ago but I am surprised no one really puts this into perspective.

In fact, many are unaware of this very fact because GST and removal of sugar subsidy stole the limelight.

I am referring to the RM 500 one off incentive (read: almost like cold hard cash) to Private Retirement Scheme  (PRS) contributors with minimum cumulative investment of RM 1,000 - to be implemented from Jan 2014 onwards for a period of five years.

Let me explain.

If you are in the mid to late twenties, chances are that your annual chargeable income falls in the range of RM 35,001 to RM 50,000. The tax bracket for this income group is 11 percent..

That means, your actuals monetary savings for any tax relief eligible to you is 11 percent of the tax relief amount itself.

If you invest RM 1,000 into any of the funds by any PRS fund providers, you get RM 110 worth of tax savings.

With this tax savings of RM 110 and the RM 500 incentive, you are getting RM 610 of tax incentives.

But then it gets even better.

Most of the tax reliefs are “expenses type”, which means you need to spend money to get the tax savings. Things like computer purchase, insurance premiums, etc.

But this PRS contribution is one of the few “savings type”  tax relief. Just like when you invest in any unit trusts or shares, your investment may grow over time.

If you visit Private Pension Administrator (abbreviated PPA - the central administrator for PRS) website now at http://www.ppa.my, and check under Providers > PRS Funds Information > Daily Fund Prices, you can see the investment returns of all PRS funds from all providers.

One of the top performing funds yielded a year-to-date return of slightly more than 18% in just under a year.

Although past performance is not an indicator of future performance, if this performance continues, you are essentially getting RM 180 return out of the RM 1,000 you invested.

Add this up with RM 610 we calculated earlier, you are getting up to RM 790.

That’s 79% return.

Not many stocks could give you a minimum 61% return and up to 79% return within a year.

As an independent financial adviser, I can tell you wealth accumulation is not just about investing. We should always adopt a more holistic approach - this is a very good example of tax savings which indirectly translates into surplus. You could treat this as your investment return which is guaranteed.

Every single savings count. The wealthy mind their money, and they say - “if you don’t take care  of your money, money won’t take care of you”

Even if you don’t qualify for individual BR1M handouts, grab this opportunity highlighted above starting 2014.

This is a community message to all youths by Lieu Ching Foo, the founder of  personal finance blog - http://HowToFinanceMoney.com. 

Note: besides the RM500 incentive for those below 30 years of age, the government has provided tax incentive with relief up to RM3,000 for those who puts in his / her money into PRS, in its budget for 2012. The relief is for first 10 years from assessment year 2012.