How To Invest Your EPF Account 1 In The Members Investment Scheme & Is It Worth The Risk?

Consider MIS if you have a substantial EPF holding of at least RM300,000.

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Planning for our financial future, especially retirement, is like playing a strategic game of Monopoly for Malaysians

One of our biggest assets in this game is the Employees Provident Fund (EPF), our very own financial safety net. But wait, there's a twist!

Within the EPF lies a hidden treasure called the Members Investment Scheme (MIS), where EPF members can invest in multiple assets to diversify their funds.

To guide you through this journey and help you navigate the MIS maze, we've gathered insights from three financial planners in Malaysia.

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What is MIS?

The EPF Members Investment Scheme allows eligible members to invest a portion of their EPF Account 1 savings into EPF-approved investments such as unit trusts or managed account portfolios.

Unit trust and managed account portfolios are investment options where your money is pooled together with other investors' money and managed by professional fund managers.

"Using MIS, however, will move your EPF holdings to the unit trust funds of your choosing. One big effect is that your capital will no longer be guaranteed," said Ian Wong, the founder of Uno Advisers.

This means your fund holdings may fluctuate based on market conditions, potentially resulting in losses, and are highly unlikely to be as stable or consistent as EPF's dividend. However, the upside is that these funds could potentially outperform the EPF dividend in the long run.

"It is important to note that using MIS will incur fees, which can result in sales charges of up to 3% upfront, in addition to an annual management fee charged by the specific unit trust funds," Wong adds.

Are you eligible for it?

The eligibility for MIS participation extends to all EPF account holders aged 18 to 55. However, members must ensure their Account 1 balance exceeds the Basic Savings requirement for their age before considering MIS.

"Members aged 55 and below can transfer excess funds from EPF Account 1 up to 30% of the amount above the Basic Savings in Account 1," explains Resolute Planning Sdn Bhd director Linnet Lee.

Lee also advises members to understand their risk profile and investment objectives before opting for MIS, as the scheme involves market risks and fees.

What are your investment options and strategies?

EPF's strategic asset allocation aims to create a diverse mix of assets, balancing risk and return. The investment options under MIS include:

  • Unit trusts
  • Private mandate portfolios (personalised investment accounts managed by professional advisors)
  • Local or overseas stocks
  • Exchange-traded funds (funds that are traded on stock exchanges)
"The EPF investment strategy involves investing in multiple assets including fixed income, or investments that pay a fixed rate of return over a set period.

"There is also local and foreign equity (ownership in companies), real estate, infrastructure, and money market instruments, which are short-term debt securities with high liquidity and low risk," said Kuah Soo Yee, a senior associate at IPP Financial Planning Group Malaysia.

How does MIS manage the balance between risk and return?

EPF maintains a list of approved funds eligible for MIS investment, which you can check via the EPF or Federation of Investment Managers Malaysia websites.

"To qualify under MIS, a fund must meet the EPF-MIS Fund Evaluation Methodology's criteria, which assesses consistent long-term performance. This methodology can suspend funds that fail to meet requirements or reinstate previously suspended ones," Wong emphasised.

How can you track the performance of your investment?

According to Lee, members can use EPF's i-Invest platform to track investment performance, or whichever platform was used for the MIS allocation.

"When evaluating the MIS fund's performance, focus on its five-year average. Compare its performance against its benchmark and similar funds in its category. Also, consider the fund's average performance compared to EPF's dividend over multiple years, not just one," Wong advises.

Can you withdraw funds from MIS?

When you withdraw from a fund invested via MIS, that money goes back into your EPF account. Money invested via MIS is still considered part of your EPF and cannot be accessed until you reach the age of 55.

"However, fund withdrawals for specific purposes are currently available through EPF Account 2, which includes provisions for housing, education, and medical expenses," Kuah reassured.

If EPF rates remain at their current levels, it's perfectly acceptable to maintain your retirement fund within EPF and not utilise MIS at all. Remember, using MIS does not increase your total retirement fund; it simply involves moving assets from one area to another.

"EPF is already a very strong and highly recommended retirement fund. I typically only recommend people to consider MIS if their EPF holdings are substantial (at least RM300,000), and even then, I advise allocating only a small percentage of it (around 10%) via MIS," said Wong.

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