I believe every Malaysian should have heard about Employees’ Provident Fund (EPF). It is established to help Malaysian workforce to save for their retirement. In short, it is a retirement fund created by the government for the citizens. How could a retirement fund become an investment?
Dividend history
Recently, EPF declares its dividend for 2019 and it is 5.45%. Let’s look at its previous 10-year dividend history, starting with year 2009. I am showing the dividend history of the conventional account only.
2009: 5.65%
2010: 5.80%
2011: 6.00%
2012: 6.15%
2013: 6.35%
2014: 6.75%
2015: 6.40%
2016: 5.70%
2017: 6.90%
2018: 6.15%
We can see that its dividend rate is in the range of 5 – 6+%. In EPF history, the lowest dividend rate was 2.50% during 1952 – 1959, followed by 4.00% in 1960 – 1962 and 4.25% in 2002. Even during the 2008 financial crisis, it managed to give a dividend of 4.50%. The dividend for 2019 is its lowest since 2008 but it is still above 5.00%. However, the recent development in the stock market is quite worrying. For the time being, I am going to assume that it is able to give an average of 5.00% dividend rate going forward.
Benefits of EPF as an investment
First, the EPF guarantees a minimum 2.50% dividend for the conventional account (Link). Nonetheless, it exceeds this minimum since 1960. Thus, I believe it will not revert back to the minimum in the near future as it has to at least beat the inflation rate.
Second, there is the tax deduction. EPF contributions are tax-deductible up to a maximum amount of RM 4,000.00 (subject to periodic amendments by the government). However, this amount includes the exemption for life insurance premium. Thus, if your deduction for the combination of EPF contribution and life insurance premium does not exceed RM 4,000.00, you should consider to top up your EPF to maximize this benefit.
Third, the money is untouchable, at least for the bulk of our fund. Although EPF allows withdrawal for certain purposes (mainly from Account 2), I would suggest not to do so as this will give more time for the compound interest to work to our advantage.
Disadvantages of EPF as an investment
The main drawback is also that the money cannot be accessed easily. If you have an emergency, it is very hard to take the money out from EPF.
The other disadvantage is its return is lower than some other instruments. For instance, if you are a good stock investor, you may easily attain return that may be double of EPF.
Conclusion
The maximum contribution into EPF per year is RM 60,000.00. If you tend to fritter away your money and/or are someone who finds it hard to save, I would recommend you to put some money into EPF (at least up to the tax deduction value of RM 4,000.00). Or if your tax liability is high, you may want to make use of the maximum deduction. We can contribute to EPF through online transfer, albeit only with Maybank, Public Bank, CIMB, Kuwait Finance House and RHB Bank only.
So, what do you think about EPF as an investment? Do let me know in the comments section below.
Comments
I do agree with your methods, to max out the 4000 tax deduction value. However, do you do any topics on insurance like rider vs standalone?
Author
Hi, AnAngel65.
Thanks for your comment. As I am primarily writing on investment and I do not have much experience on pure risk management, I do not write anything about insurance on this blog.
Sorry about this.
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