Withdrawal of EPF money for investment (Part 1/2)

Our EPF (a.k.a. KWSP) savings yield dividends which are generated from EPF’s investment activities and declared annually. The EPF’s investments are pretty conservative in nature and the historical highest dividend declared was 8.5% between 1983-1986 and the lowest was 2.5% between 1952-1959.

On the contrary, the EPF Member’s Investment Scheme allows contributors to withdraw savings from Account 1, in excess of Basic Savings, for investment in approved unit trust funds and/or fund managers under the scheme. During the bull market, these funds can easily outperform EPF dividend yield by a few times and provide chance for your retirement money to grow faster.

As a result, we have the following 3 choices for our EPF Account 1 savings to go for:

1. Retain the EPF savings in the account
Description: Don't withdraw and let your EPF savings stay and grow in your account.

Pros:

• The EPF ensures that your savings are secured and never make a lost.
• It has a guaranteed minimum dividend of 2.5% every year.

Cons:

• The savings growth is relatively slow.
  
• The dividend yield might not be significant enough to cover the inflation rate.
• You have no control over investment decisions. Some of EPF past investments are very questionable.
• Fund performance is only made known to public once a year when dividend is declared.
  

2. Invest in Unit Trust Funds
Description: Withdraw part of your EPF Account 1 savings and invest in approved unit trusts managed by approved unit trust managers. If you sell out the unit trusts, the money will go back to your EPF Account 1.

Pros:

• You do not need to fork out additional money from your pocket to make the investment.
  
• The investment will be professionally managed by licensed fund managers.
• Risk reduction through a diversified portfolio.
• Fund performance can be monitored with reports and price movement.

Cons:

• No guaranteed return (unless for certain guaranteed return funds) and there is a chance of making lost.
  
• You have no control over investment decisions.
• A service charge of up to 3% when buying the units under the EPF Member’s Investment Scheme.
• Switching and transfer funds might also incur service charge.

3. Invest with Fund Managers
Description: Withdraw part of your EPF Account 1 savings and engage the services for professional fund managers appointed by the Ministry of Finance and approved under the scheme. If you terminate the service, the money will go back to your EPF Account 1. There are 2 modes of fund investment service: discretionary and non-discretionary.

Pros:

• For discretionary portfolio, your investment will be professionally managed by the licensed fund managers.
• For non-discretionary portfolio, you have the final say over investment decision, similar to invest directly in share market with remisiers.
• Better chance to always outperform the best unit trusts if you are good in investment.

Cons:

• High entry level as there is a minimum fund size of acceptance to fund management. Usually your EPF Account 1 need to have 6 digits before engaging this service.
• No guaranteed return and there is a chance of making lost if not careful.
• For non-discretionary portfolio, you need to devote considerable time and effort to manage your portfolio.

Related links to EPF website:

• About the EPF Member’s Investment Scheme and eligibility info
  
• Table of required Basic Savings to retain in EPF Account 1 based on your age
• List of appointed fund management institutes under the scheme

To continue reading on Part 2 of this post, click here.