What can I say……what a goooood moooove by the EPF! This means that we investors who decide to withdraw from Account 1 of our EPF to invest in mutual funds now pay only a sales charge of 3% compared to the previous rate of approx. 6%. This takes effect on 1 Jan 2008.
When you consider that typically such EPF withdrawals are for amounts that are quite large, the savings would be significant. So for a RM10,000 investment, instead of paying the fund company something like RM600 like in the old days, we now only pay RM300. Good eh? Read more on this from the KWSP’s website.
Hopefully this downward trend in the sales charge is just the beginning….and we will see further reductions in the years to come! Fingers x 
By the way, another piece of good news on EPF-related things is the announcement of a 5.8% dividend for 2007 year compared to 5.15% for 2006. This will be credited to members’ accounts on 1 March 2008. How generous…and we look forward to more in the years ahead
With effect from 1 Feb 2008, there are also new rules on the eligibility for you to make EPF withdrawals for mutual fund investments. Before this date you could only make withdrawals when your Account 1 exceeds RM50,000, the amount being 20% of the amount in excess of RM50,000 and provided the minimum amount invested must be RM1,000.
Now the rule is that the minimum amount in Account 1 (what the EPF calls your “Required Basic Savings in Account 1) for withdrawal eligibility depends on your age. This is set out in the table below. However the minimum investment amount of RM1,000 still stands. As you can see, the younger you are the lower would be the minimum amount. Someone who is 20 years old only needs to accumulate RM3,000 in their account in order to start investing in mutual funds. However because of the RM1,000 minimum investment rule, this person would need at least RM8,000 in Account 1 in order to start i.e. 20% x Excess over Basic Savings = 20% x (RM8,000-RM3,000) = 20% x RM5,000 = RM1,000.
Isn’t that truly incredible??? Now young people can get saving even in their 20’s as they are starting out in their careers instead of waiting till they’re in mid career… At this point, I can’t help but highlight that good ol investment gem that I picked up (and should have picked up much younger!) —- the younger you start investing, the more you will stand to gain from the power of compound interest.
Here’s the table:
Required Basic Savings In Account 1
|
Age |
Basic Savings |
Age |
Basic Saving |
|
18 |
1,000 |
37 |
34,000 |
|
19 |
2,000 |
38 |
37,000 |
|
20 |
3,000 |
39 |
41,000 |
|
21 |
4,000 |
40 |
44,000 |
|
22 |
5,000 |
41 |
48,000 |
|
23 |
7,000 |
42 |
51,000 |
|
24 |
8,000 |
43 |
55,000 |
|
25 |
9,000 |
44 |
59,000 |
|
26 |
11,000 |
45 |
64,000 |
|
27 |
12,000 |
46 |
68,000 |
|
28 |
14,000 |
47 |
73,000 |
|
29 |
16,000 |
48 |
78,000 |
|
30 |
18,000 |
49 |
84,000 |
|
31 |
20,000 |
50 |
90,000 |
|
32 |
22,000 |
51 |
96,000 |
|
33 |
24,000 |
52 |
102,000 |
|
34 |
26,000 |
53 |
109,000 |
|
35 |
29,000 |
54 |
116,000 |
|
36 |
32,000 |
55 |
120,000 |
See that after you hit age 42, the amount of Basic Savings that you are required to keep in your Account 1 is actually higher than RM50,000. Yeeeks, that doesn’t leave me with much time!! Ultimately, the EPF wants us to grow our Basic Savings in Account 1 to RM120,000 by the time we hit 55 years of age….and the rationale is that if you’re younger you have more years to earn and to accumulate to hit that amount, therefore you can afford to withdraw your money to invest in mutual funds even though your Basic Savings may be much lower.
Withdrawals for investments purposes are allowed only once every 3 months….which is the only thing that I think the EPF can still improve upon. Ideally we should be allowed to make monthly withdrawals and then truly take advantage of Dollar Cost Averaging, which is the most effective way to invest in mutual funds, in my opinion.
I’ve added in some examples of how to check whether you have enough money to invest for your reference, courtesy of the EPF’s website:
|
Member |
Age |
Savings In Account 1 |
Basic Savings (RM) |
Computation: Savings In Account 1- Basic Savings x 20% |
Member’s Eligibility |
|
A |
22 |
4,000 |
5,000 |
- |
Not qualified as the savings is lesser than the basic savings required. |
|
B |
22 |
8,000 |
5,000 |
(8,000 – 5,000) x 20% = RM600 |
Not qualified as the savings is lesser than required minimum investment amount of RM 1,000. |
|
C |
25 |
20,000 |
9,000 |
(20,000 – 9,000) x 20% = RM2,200 |
Qualified as the savings is more than the basic savings and minimum limit. |
|
D |
40 |
40,000 |
44,000 |
- |
Not qualified as the savings is lesser than the basic savings required. |
|
E |
45 |
100,000 |
64,000 |
(100,000 – 64,000) x 20% = RM7,200 |
Qualified as the savings is more than the basic savings and minimum limit. |
March 27, 2008 at 11:42 am
Yeah, it’s great, isn’t it? Capped at 3%! That way our hard earned money don’t have to bleed so much to the Unit Trust sales charge.
All the other moves are also great. Now we can invest more with Unit Trust funds and make more money than what we are earning from EPF’s dividend.
You have a great site, Emily!
April 9, 2008 at 10:06 pm
And non-EPF investors like myself still have to fork out 5%.
May 3, 2008 at 12:39 am
Correct me if I’re wrong!!
Deem sales charges = 6% p.a.
Deem FD interest rate = 3.05% p.a. (1 mth)
Deem EPF interest rate = 5.8% p.a.
EPF Withdrawal
give up 5.8% + pay 3% = contributed 8.8%
FD Withdrawal
give up 3.05% + pay 6% = contributed 9.05%
Actually the different is .25%
Say, RM1000 investment different in RM2.5 only
I’d say nothing so great. Yet, appreciation is there just that there is still rooms for improvement.