PRS funds are not risk-free

Posted on 22 July 2012 - 08:40pm
Last updated on 23 July 2012 - 08:28am

Ee Ann Nee
sunbiz@thesundaily.com

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PETALING JAYA (July 23, 2012): Funds offered under the private retirement scheme (PRS) are not risk-free and investors should choose a fund based on their objective, time horizon and risk appetite, fund managers warned.

"Investors need to be reminded that no investment is risk-free, including PRS funds. Retirement investing should be simple, straightforward and low-cost, committed to delivering performance without the heavy price tags," Hwang Investment Management Bhd (HwangIM) chief product officer Steve Lim told SunBiz in a written reply.

As one of the eight approved PRS providers, HwangIM is selling its PRS funds at zero sales charge to attract investors, said Lim, adding that investors' contributions will be fully invested from day one.

"The investment horizon in PRS is long term, so any market volatility should be smoothened out over the long run," he added.

HwangIM is targeting to offer employers and employees solutions in the form of contributions to retirement funds as well as staff benefits and retention in the form of additional contributions and vesting programmes.

Lim said its personnel and resources within the existing infrastructure have been earmarked to plan and execute the new PRS line of business.

"The HwangIM team will be managing both the PRS funds as well as its existing unit trust funds.

"The Employees Provident Fund (EPF) has set the bar high and we are prepared to challenge ourselves to achieve the scheme's objective to help Malaysians build retirement savings. The success of any retirement scheme is stability and regular returns — fund performance consistently over the longer term. We are confident we can deliver," he said, adding that the PRS is skewed to offer more aggressive portfolios, hence returns, compared with the EPF scheme.

Unlike unit trust funds, Lim said PRS is a long-term retirement scheme that comprises a range of funds with different risk-return profiles, offered only by approved PRS providers, while the former vary tremendously in terms of investment objective, risk, return, sales charge and the various fees common to such collective investment schemes.

"Understandably, there will be a lot of reservations towards an untested and ambitious scheme like this. However, the blueprint is based on an existing and successful EPF and it will be managed by independent fund houses that have sound investment track records of at least 10 years," Lim said.

"This flexibility is equivalent to investing on your own, except that the PRS providers are selected by the Securities Commission (SC) to manage such funds, which means there's an added layer of control.

"In addition, the front-end cost of PRS should be competitive or lower compared with investing in unit trust funds," he added.

CIMB-Principal Asset Management Bhd, also a PRS provider, said PRS provides more flexibility and choice because individuals can now invest additional savings according to their age and risk-return tolerance.

Its CEO Campbell Tupling said the company expects the conservative portfolio to provide at least the returns that EPF is declaring so as to encourage contributors to invest.

"The PRS will provide an additional channel to save for retirement, where it exists to complement the EPF as well as to help those who do not have an EPF account," he said.

OCBC Bank (Malaysia) Bhd head of wealth management, Ong Shi Jie, sees PRS providers approaching employers to obtain greater participation.

She said there would also be attempts to reach out to end-investors through distributors such as banks.

"Although returns from contributions made to PRS are not guaranteed, there is a need to supplement basic retirement savings (EPF) through private initiatives.

"Clearly there are tax incentives to spur this. Better investor education would provide a sustainable approach," she added.

Ong said PRS allows investments into a unitised structure such as a unit trust fund, whereas a unit trust itself is simply a unitised structure.

"PRS is thus by nature a scheme that requires funds to have different fee structures and features incorporating enhanced customer care. The latter means, for example, that only certain age groups can participate in the riskier funds," she said.

PRS providers will have to provide three default funds: growth, moderate and conservative; and up to four other funds. The first set of schemes comprising 24 funds will be available from September.