Fund managers say maintain EPF scheme for unit trust.
Fund managers: "maintain EPF scheme for unit trust"
By Isabelle Francis The EdgeDaily 7th August 2006.
Some of the Employees Provident Fund's (EPF) appointed fund management institutions have sought clarification on a news report that 80% of EPF contributors who invested their savings in unit trusts posted losses totalling RM600 million.
A few of the EPF-appointed fund managers told FinancialDaily they doubted the accuracy of the reported loss figure, which was attributed to their inability to invest in profitable ventures.
Until such figures could be verified, they advised the investing public not to be alarmed, even if the reported loss figure was true, as the true returns potential of unit trusts was for the long term.
All the fund managers were of the view that the EPF scheme should not be scrapped as they could give better returns than the EPF itself.
So far, under the scheme, 42 fund management institutions are allowed to manage EPF savings on behalf of contributors.
Under the scheme, EPF account holders with minimum savings of RM55,000 in Account One can invest part of the savings into fund management institutions sanctioned by the Ministry of Finance.
The fund managers agreed that investors should be educated on the risks involved before withdrawing from their EPF accounts.
A local fund manager said while investors had to understand the risks involved, a matter that could be an issue was the high cost of investing in unit trusts.
"If you invest RM100, RM6.50 is deducted as upfront fees; that itself is expensive.
"It (the report) does provide a wakeup call to the whole architecture as all the while, the EPF uses agency and the agency tend to sell products with good upfront commissions," she said.
The fund manager added that agents would have better fees from selling equity funds compared with bond funds, which were relatively more stable and carried less risks.
Nonetheless, she said while investors were advised on the risks, it was entirely up to the investors on whether they were able to take on those risks. "The higher the risks, the better the returns," she added.
"Investors should not panic. There could be some truth to the losses because of the investments in equities, but these could be due to those who entered at the peak of equities," said the fund manager.
Another fund manager said: “It (EPF) is a good source of funds for investors and fund managers are able to manage for investors according to their investment objectives and risk appetite.
“The investment horizon makes EPF money suitable for unit trust investment. EPF should make investors more aware (of the risks).
"Investors should understand and know their objectives and types of funds they invested into,” said a local fund manager.
He said that the losses reported were disputable as “we do not have the full facts and what kind of funds the money was put into."
Another local fund manager maintained that the public could get more returns in the long term from unit trusts, which was very often more than what EPF could offer.
He was sceptical of the reported quantum of losses and that it was “scaring people away”.
The fund manager added that the losses might be short-term losses, if at all true, “and you can’t make money in the first year because of the high transaction costs.”
Another local fund manager contacted by FinancialDaily said: "I can't be alarmed by dubious reports. On a bigger scale, the EPF scheme was launched during the peak of the domestic equities market.
"Relative to the market, the EPF scheme is actually doing better, with only 5% eroded if the reported figure is right (much less than the erosion of overall market capitalisation)."
She said the EPF scheme was not only for mutual funds but also for the trading of futures options. "Perhaps, the investment in futures has dragged down the overall returns."