Lit Angels at Coleman BKK 

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
 (Years)

Basic Savings
(RM)

Age
(Years)

Basic Saving
 (RM)

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
 (RM)

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.

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