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As at 30 November 2008, there are 38 MPF schemes in the market that provide an aggregate of 340 constituent funds. On average, scheme members can choose between about 8 types of funds within an MPF scheme.
The law requires all MPF schemes to offer at a minimum, a capital preservation fund (CPF) in each scheme. In order to meet the different risk tolerance levels of scheme members, all MPF schemes in the market provide other investment fund choices in addition to a CPF. The range of the funds on offer may go from low risk steady growth options, to higher risk (potentially) higher growth options.
The following types of funds are available in many MPF schemes:
Guaranteed Fund
A guaranteed fund (GF) provides some form of guarantee to scheme members investing in the fund. Some guaranteed funds provide a guarantee on the capital invested, some on a minimum rate of return on investment or some on other special terms. The guarantee can be conditional or unconditional. A conditional guarantee is provided upon fulfilment of a set of conditions, while an unconditional guarantee means the guarantee is provided without any conditions imposed. The majority of guaranteed funds in the MPF market offer conditional guarantees. The guarantor usually charges a guarantee fee or reserve charge for providing such a guarantee. A GF can be investment-linked (i.e. the returns of the fund are directly linked to the performance of the assets in the fund) or non-investment-linked (i.e. the returns of the fund depend on factors that are not related to the performance of the assets in the fund).
In case of a conditional guarantee, it is important that you should pay special attention to certain qualifying conditions, which may include:
Minimum investment period - During this period, if you move units or assets out of a GF or your employer transfer all its employees' MPF accounts to another MPF scheme, the guarantee will become void.
Limited guarantee period - Some GFs have a fixed guaranteed period of, say, three years. When the guaranteed period expires, the fund automatically becomes a non-guaranteed fund.
Withdrawal - The investment guarantee may only be applicable to withdrawal of accrued benefits under specific circumstances such as attaining the age of 65, early retirement, death and total incapacity. Please click here for more information.
Cancellation or modification of guarantee - You should check the offering document and other marketing materials for the circumstances in which the guarantor may cancel or modify the guarantee. For some guaranteed funds, the guarantor may unilaterally change the guaranteed rate by giving an advance notice of, say, three to six months. In certain cases, the guarantor may cancel the guarantee in the light of unfavourable market conditions.
Failing to meet the qualifying conditions of a GF can mean that the guarantee does not apply to you. You should read the details and pay attention to and understand the qualifying conditions before investing in a GF.
Click here for an overview of the different types of MPF funds.
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