Posted by - September 18, 2024

Diversifying EPF Account 1 Investments into Unit Trust: A Smart Move for Long-Term Growth

 

The Employees Provident Fund (EPF) is the primary savings instrument for most Malaysians in preparing for retirement. However, for those looking to maximize returns and achieve long-term financial goals, EPF also offers opportunities to diversify investments through the Members Investment Scheme (MIS). One popular option is investing in unit trust. In this article, we’ll explain why and how diversifying your EPF Account 1 into unit trust can provide significant benefits.

What is Unit Trust?

A unit trust, or mutual fund, is an investment vehicle that pools funds from different investors and invests them into various assets such as equities (stocks), bonds, real estate, and money market instruments. Professional fund managers actively manage these funds on behalf of investors to maximize potential returns and minimize risks.

Why Diversify EPF Account 1 into Unit Trust?

  1. Higher Potential Returns
    • While EPF provides stable returns in the form of annual dividends, investing in unit trust offers higher potential returns, especially in the long run. This is because unit trust investments are exposed to stock markets and other assets that can deliver better returns than the fixed returns offered by EPF.
  2. Professional Management
    • Unit trust investments are managed by experienced and professional fund managers. They monitor market performance, analyze economic trends, and make informed investment decisions on your behalf. This ensures that your investments are well-managed by experts who keep a close eye on market conditions.
  3. Portfolio Diversification
    • By investing in unit trust, you automatically diversify your investments into various assets, industries, and market sectors. This reduces the risk that may arise if one sector or company underperforms. For instance, if one sector experiences a downturn, other sectors in your portfolio may still generate profits, thus balancing out the overall performance of your portfolio.
  4. Access to a Variety of Asset Classes
    • Unit trust provides access to a range of asset classes such as equities, bonds, real estate, and money markets that individual investors may find difficult to access. By investing in unit trust, you can own a portion of top-performing companies in Malaysia and globally without having to invest directly.
  5. Better Risk Management
    • One of the biggest benefits of unit trust is its ability to manage risk more effectively. Since your investments are spread across various assets and sectors, market volatility risks are minimized. Fund managers will take steps to protect the portfolio from excessive risks by adjusting asset allocations based on current market conditions.

How to Diversify EPF Account 1 into Unit Trust

  1. Check Account 1 Eligibility
    • EPF members can invest part of their savings from Account 1 through the Members Investment Scheme (MIS). However, only savings that exceed the basic savings threshold determined by age are eligible for investment. You can check your eligibility via the EPF website or by contacting EPF directly.
  2. Choose the Right Unit Trust
    • There are various types of unit trust funds to choose from, each with different risk levels and potential returns. The main categories include equity funds, bond funds, balanced funds, and money market funds. You need to choose a unit trust that aligns with your risk profile, financial goals, and investment timeframe.
  3. Consult a Financial Advisor
    • Before making an investment decision, it’s advisable to consult a qualified financial advisor. They can help assess your risk profile, recommend suitable funds, and give you a clearer picture of potential returns and risks involved.
  4. Invest Through the Members Investment Scheme
    • Once you’ve selected a suitable unit trust fund, you can invest through the EPF Members Investment Scheme. You only need to fill in the required forms and choose a fund manager approved by EPF. Part of your Account 1 savings will be used to invest in the chosen unit trust fund.
  5. Monitor Investment Performance
    • After investing, it’s essential to monitor the performance of your unit trust fund regularly. This ensures that it remains aligned with your financial goals and provides satisfactory returns. If market conditions change, you can adjust your investment with the help of the fund manager or financial advisor.

Risks to Consider

While diversifying your EPF Account 1 into unit trust has many advantages, there are also risks involved:

  1. Market Volatility
    • Unit trust funds, especially those that invest in equities, can be subject to market fluctuations. The value of your investment can go up or down depending on stock market performance, and there is a risk of short-term losses.
  2. Management Fees
    • Unit trust funds come with management and sales fees, which can reduce your net returns. Therefore, it’s important to understand the fee structure and ensure it is worth the potential returns.
  3. Fund Manager Performance
    • The success of unit trust investments depends largely on the expertise of the fund manager. An experienced manager may deliver good returns, but poor decisions could negatively impact the fund’s performance.

Conclusion

Diversifying EPF Account 1 into unit trust is a smart strategy for those looking to take advantage of higher potential returns in the long run. With professional management, access to a variety of asset classes, and the potential for reduced risks through diversification, unit trust can help EPF members achieve their financial goals more effectively.

However, like any investment, it’s essential to understand the risks involved and make informed decisions based on proper advice and thorough research. With the right strategy, unit trust investments can be a powerful tool to grow your retirement savings and achieve financial independence in the future.

© DKF