Tough challenge ahead for PRS to prove itself
SC chairman Datuk Ranjit Ajit Singh (left) and Datuk Seri Mohd Najib Razak at the launch of PRS in Kuala Lumpur recently (pic: Hafzi Mohamed)
The newly launched private retirement scheme (PRS) does not guarantee or provide minimum returns on investors investment.
This could prove a hurdle to attracting investors in the budding days of the private pension idea. It will take a while before the scheme can deliver a track record that will allow it to sell itself as a worthwhile investment alternative.
This can change of course, if investors are content to work with the track record brought by PRS providers. At the moment, eight providers are in the game to make available to individuals a range of retirement funds to invest in as per their retirement needs, goals and risk appetite.
The eight selected providers, thus far, are AmInvestment Management Sdn Bhd, American International Assurance Bhd, CIMB-Principal Asset Management Bhd, Hwang Investment Management Bhd, ING Funds Bhd, Manulife Unit Trust Bhd, Public Mutual Bhd and RHB Investment Management Sdn Bhd.
Perhaps, after a spell, it could then present itself as an alternative investment scheme providing good returns at a relatively low risk.
Why the lack of a guarantee?
One possible explanation is that it would not be feasible as there is always risk in investments.
When investing, one has to contend with volatility, market conditions and other factors. Although a cliché, but “no lunch is a free lunch” is applicable here.
Instead of a guarantee, what investors can look forward to is the track record of the fund managers. They do come with a certain track record on which one can base one’s investment decision.
At this juncture, the Securities Commission Malaysia (SC) has approved 24 funds.
“To give you a guarantee, the fund will be constrained as you will have to invest in a narrower basket. The idea is to give investors a choice, a supplementary scheme to manage retirement savings,” said a fund manager.
Also, investors will now have a new choice of where to park their retirement money. The PRS is a supplement to the Employees Provident Fund. Investors now can tap into experienced fund managers abilities.
Another plus is the lower entry cost to participate in the investment scheme.
Until a track record is established, for some investors, the local PRS industry may still face an uphill battle to gain traction.
Until then, Bumiputera investors, for instance, have extra investment options at hand to consider. They can opt to invest in Amanah Saham Bumiputera (ASB), which has an impressive track record of providing excellent annual returns of 7% to 8%.
Furthermore, investors do not have to contend with capital depreciation risk, management fees and lock-up periods and tax penalty for early withdrawal.
There are also a number of Amanah Saham funds they can invest in that provide slightly lower returns compared to the ASB.
Even though there is no explicit guarantee by fund manager Permodalan Nasional Bhd, many local investors have taken for granted the higher rate of returns. Here, PRS would play second fiddle, as they cannot make such promises.
Furthermore, as PRS is a long-term investment and has a mandatory lock-up rate of 70% of all contributions until retirement, investors could stand the risk of not being able to withdraw the locked-up amount if the investment turns sour. However, the proponents of PRS would say any risk is minimal as it can be spread over a longer period.
For people to invest their life savings as an alternative investment for retirement, PRS would probably need to give some assurance and be convincing that it is a worthwhile long-term investment that provide reasonable returns and is relatively risk-free. This could be managed by educating the public.
In a nutshell, PRS is likely to face some tough challenges in the initial stage to convince the public that it is a good and viable alternative pension scheme. As is the common rule of all investment schemes, the survival and the long-term viability of PRS will depend on its performance.
This could prove a hurdle to attracting investors in the budding days of the private pension idea. It will take a while before the scheme can deliver a track record that will allow it to sell itself as a worthwhile investment alternative.
This can change of course, if investors are content to work with the track record brought by PRS providers. At the moment, eight providers are in the game to make available to individuals a range of retirement funds to invest in as per their retirement needs, goals and risk appetite.
The eight selected providers, thus far, are AmInvestment Management Sdn Bhd, American International Assurance Bhd, CIMB-Principal Asset Management Bhd, Hwang Investment Management Bhd, ING Funds Bhd, Manulife Unit Trust Bhd, Public Mutual Bhd and RHB Investment Management Sdn Bhd.
Perhaps, after a spell, it could then present itself as an alternative investment scheme providing good returns at a relatively low risk.
Why the lack of a guarantee?
One possible explanation is that it would not be feasible as there is always risk in investments.
When investing, one has to contend with volatility, market conditions and other factors. Although a cliché, but “no lunch is a free lunch” is applicable here.
Instead of a guarantee, what investors can look forward to is the track record of the fund managers. They do come with a certain track record on which one can base one’s investment decision.
At this juncture, the Securities Commission Malaysia (SC) has approved 24 funds.
“To give you a guarantee, the fund will be constrained as you will have to invest in a narrower basket. The idea is to give investors a choice, a supplementary scheme to manage retirement savings,” said a fund manager.
Also, investors will now have a new choice of where to park their retirement money. The PRS is a supplement to the Employees Provident Fund. Investors now can tap into experienced fund managers abilities.
Another plus is the lower entry cost to participate in the investment scheme.
Until a track record is established, for some investors, the local PRS industry may still face an uphill battle to gain traction.
Until then, Bumiputera investors, for instance, have extra investment options at hand to consider. They can opt to invest in Amanah Saham Bumiputera (ASB), which has an impressive track record of providing excellent annual returns of 7% to 8%.
Furthermore, investors do not have to contend with capital depreciation risk, management fees and lock-up periods and tax penalty for early withdrawal.
There are also a number of Amanah Saham funds they can invest in that provide slightly lower returns compared to the ASB.
Even though there is no explicit guarantee by fund manager Permodalan Nasional Bhd, many local investors have taken for granted the higher rate of returns. Here, PRS would play second fiddle, as they cannot make such promises.
Furthermore, as PRS is a long-term investment and has a mandatory lock-up rate of 70% of all contributions until retirement, investors could stand the risk of not being able to withdraw the locked-up amount if the investment turns sour. However, the proponents of PRS would say any risk is minimal as it can be spread over a longer period.
For people to invest their life savings as an alternative investment for retirement, PRS would probably need to give some assurance and be convincing that it is a worthwhile long-term investment that provide reasonable returns and is relatively risk-free. This could be managed by educating the public.
In a nutshell, PRS is likely to face some tough challenges in the initial stage to convince the public that it is a good and viable alternative pension scheme. As is the common rule of all investment schemes, the survival and the long-term viability of PRS will depend on its performance.
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