Posted by - September 18, 2024

Planning to Increase Retirement Funds in EPF Account 1 Through Unit Trust

 

Increasing your retirement funds is an essential step to ensuring strong and sufficient finances after retirement. The Employees Provident Fund (EPF) is the primary savings instrument for retirement in Malaysia. However, for those who wish to grow their retirement funds more aggressively, investing a portion of your EPF Account 1 into unit trust through the Members Investment Scheme (MIS) is a strategy worth considering.

Here is a guide to planning and implementing unit trust investments to boost your retirement funds.

1. Set Clear Retirement Goals

The first step in financial planning is to define your retirement goals. You need to determine how much you will need after retirement to maintain your lifestyle. Consider factors such as:

  • Future cost of living
  • Inflation rate
  • Life expectancy post-retirement

With clear goals, you can determine how much you need to invest and the returns expected to achieve the desired retirement fund.

2. Understand the EPF Members Investment Scheme (MIS)

EPF allows members with savings exceeding the minimum balance in Account 1 to invest part of their savings in unit trust. The Members Investment Scheme (MIS) provides an opportunity to achieve higher returns compared to EPF’s annual dividends by investing in capital markets.

Before investing, ensure that you:

  • Check your investment eligibility through your EPF account
  • Understand the maximum investment limit based on the balance in Account 1
  • Understand the risks involved in the investment

3. Choose the Right Unit Trust

The next step is to select a unit trust that suits your risk profile. There are various types of unit trust funds that differ in asset classes and investment strategies. Here are some common types of unit trusts:

  • Equity Funds: Invest in stocks and usually offer higher returns but come with greater risks. These are suitable for long-term investors seeking capital growth.
  • Bond Funds: Invest in government or corporate bonds, providing more stable returns with lower risk. These are suitable for those seeking to reduce risk.
  • Balanced Funds: Combine investments in both equities and bonds to balance between growth and fixed income.

You can select funds based on your risk tolerance, investment period, and financial goals. It’s advisable to seek advice from a registered financial advisor to help you make the right decision.

4. Develop an Investment Strategy

To plan a successful investment, you need to develop an investment strategy based on your time frame:

  • Long-Term Investment: If you are far from retirement age, you may choose equity or balanced funds that offer higher potential returns over 10 to 20 years. The power of compounding will significantly increase the value of your investment in the long term.
  • Short to Medium-Term Investment: If you are approaching retirement, consider funds with lower risk, such as bond funds or balanced funds. These will help protect your capital while still providing stable returns.

5. Monitor and Evaluate Investment Performance

After making an investment, it is important to monitor the performance of your unit trust funds regularly. Ensure they remain aligned with your financial goals and risk levels. If there are changes in market conditions or financial goals, you can adjust your investment strategy with the help of a financial advisor.

Additionally, pay attention to management fees charged by the fund managers. These costs can affect your net investment returns.

6. Rebalance the Portfolio If Necessary

Market conditions and your financial needs may change over time. Therefore, you might need to rebalance your portfolio occasionally to ensure it stays relevant to your retirement goals. For example, as you approach retirement, you may want to shift more of your investments into lower-risk funds.

Conclusion

Investing in unit trust through EPF Account 1 is a smart strategy to boost your retirement savings. With the potential for higher returns, asset diversification, and professional management, unit trusts can help you achieve larger retirement financial goals. However, as with any investment, there are risks involved, so it’s important to make informed decisions based on sound advice and thorough research.

With proper planning and execution, investing through unit trust can provide a more secure financial future and a more comfortable retirement.

© DKF