- How can I manage my MPF investments in a volatile market?
You should bear in mind that MPF investments are long-term investments. You should not be over-concerned about short-term market volatility if you are still some time from retirement. The only time that the price actually impacts on you is when you take the money out of the System either at retirement or upon early withdrawal under special circumstances allowed. Therefore you should think clearly about whether you really need to switch out of/into an MPF fund just because of the short-term price drop/rise of the MPF fund concerned.
Moreover, MPF investments follow the dollar cost averaging mechanism, which allows scheme members to spend a fixed amount of contribution to buy an MPF fund on a regular basis regardless of the fund price. This means more units can be purchased when prices are low, and fewer units when prices are high. When the market improves, you can have a better return with more units of MPF fund purchased.
- Have MPF investments been affected by the financial tsunami?
All investments, including MPF funds, carry risks. Like other investments, the performance of MPF funds (of which 60% of the total assets are invested in equities as at 30 September 2011) has inevitably been affected by the financial tsunami. Nevertheless, the stringent investment restrictions under the MPF System have mitigated the adverse impact.
- How does the current regime regulate the underlying investments of MPF funds?
All MPF funds are required to comply with the stringent investment restrictions
under the MPF legislation. The use of high-risk structured products and leveraging is prohibited. The total amount invested in securities and permissible investments issued by a single issuer must not exceed 10% of the total assets of an MPF fund. The purpose is to achieve diversification in order to minimize risk.
- How does MPFA monitor trustees of MPF schemes to ensure that scheme members’ interests are properly protected?
The MPFA imposes stringent entry and on-going eligibility requirements in terms of capital adequacy, professional competence, resources sufficiency, internal control and risk management systems on trustees, custodians and investment managers.
The MPFA adopts a proactive risk-based approach in monitoring the trustees' on-going compliance with rules and regulations through review of monthly, quarterly and yearly returns, audited financial statements and reports of the trustees. It also conducts periodic and special/thematic on-site inspections. The MPFA emphatically notes that trustees should have proper compliance monitoring systems in place to ensure their on-going compliance with the rules and regulations under the MPF regime.
- How can I safeguard my own MPF investments?
Different MPF schemes offer different funds for members to select. You should understand the features and risks of an MPF fund by reading the Offering Document and Fund Fact Sheet before investing in it, and choose the MPF funds that best match your investment objectives and risk tolerance level.
If the investment climate is unfavorable when you reach the age of 65, you may consider keeping the accrued benefits in the MPF System for continuous investment, to make the best of market conditions and suit your personal needs. You may then consider withdrawing your accrued benefits later, when the prices of MPF funds rebound.
On MPF Funds and Investment
- Is it riskier to invest in Equity Funds than in Bond Funds as an MPF investment?
Given that the price fluctuations of stocks are on average higher than those of bonds over the long term, the risks of Equity Funds are generally higher than other types of funds, including Bond Funds, over a short period of time. However, when interest rate volatility is high or the credit rating of bond issuers is downgraded, Bond Funds may be as volatile as Equity Funds.
- Why did I suffer a loss despite investing in Growth Funds?
Growth Funds are MPF funds which normally have a heavy holding of equity in their asset mix. Due to the volatility of the underlying stocks and markets, Growth Funds may exhibit large price fluctuations, and therefore scheme members may make a gain or suffer a loss. In fact, all investments carry a certain degree of risk. As higher potential return comes with a higher risk, the higher the return you expect from a fund, the higher the risk you have to prepare to take.
- Why can’t an MPF Conservative Fund fully preserve my contribution capital?
An MPF Conservative Fund is a conservative investment in low-risk Hong Kong dollar assets, including short-term bank deposits and bonds. Although the risk level of an MPF Conservative Fund is relatively low, it does not mean there is no risk at all. Its performance may be affected by interest rate fluctuations. Its return may not beat inflation, or may even be negative.
- What is the difference between Index Funds and actively managed funds?
Index Funds are passively managed funds. Their investment objectives are to track the performance of the reference indices. Investment managers of these funds passively make reference to the change in the constituent stocks and markets exposure of the respective indices, to closely replicate the performance of these indices.
In contrast, for actively managed funds, investment managers have the discretion to adjust the mix of fund assets subject to compliance with the investment objectives and investment restrictions of the funds.
- Why does the performance of Hang Seng Index tracking funds not follow the movement of the Hang Seng Index (“HSI")?
Although the investment objective of HSI tracking funds is to match as closely as practicable the performance of the HSI, there can be no assurance that their performance will on each valuation day track or be identical to the HSI. Some of the reasons are set out below:
- Fees and expenses are payable out of the assets of the HSI tracking funds, but the HSI does not reflect such fees and expenses;
- Transaction fees and stamp duty will be incurred in adjusting the composition of the investment portfolio of the HSI tracking fund following changes in the composition and weighting of the constituent stocks of HSI; and
- When there are changes in the composition or weighting of the constituent stocks of the HSI, there may be timing differences between the changes in the HSI and the corresponding adjustment to the investment portfolio of the HSI fund.
- Why does MPF offer only limited choices of investment products or funds with high growth potential?
In order to protect the interests of scheme members, there are stringent investment restrictions on MPF funds. A range of MPF funds with differing risk profiles have been made available as MPF fund choices. The major types of MPF funds are Equity Funds, Mixed Assets Funds, Bond Funds, Guaranteed Funds, MPF Conservative Funds and Money Market Funds. Currently there are more than 400 funds, averaging 10 funds under each scheme, with risk levels ranging from low to high for members to choose.
On Fund Fees and Performance
- If no further contributions are made to an MPF account but management fees are still collected, will the balance drop to zero?
The management fee is deducted on a percentage basis rather than as a fixed fee, so it is impossible for this to reduce the balance of the account to zero. For the majority of MPF funds, management fees are deducted from the fund assets and will be reflected in the fund price.
- Is there any measure to regulate the charging of fees on MPF Conservative Funds so as to ensure that funds will not be consumed by the fees charged?
The fee charging arrangement of MPF Conservative Funds is different from that of other MPF funds. The MPFA publishes a monthly Prescribed Savings Rate ("PSR") based on the average interest rates offered by the three local note-issuing banks for a Hong Kong dollar savings account. Where the rate of return offered by an MPF Conservative Fund for a particular month is equal to or lower than the PSR, the trustee cannot charge any administrative fees. If the fund return exceeds the PSR in any month within the next 12 months, the trustee can collect the administrative fees that have not been charged.
- Why has my trustee not been able to provide information regarding fees and expenses of the constituent funds in my account?
Generally speaking, there are two ways in which fees and expenses are deducted, namely:
- deducting fees and expenses from the assets of the fund ("Fund Level Deduction"); and
- deducting fees and expenses from the members' accounts by way of unit deduction ("Member Level Deduction").
Currently, most MPF funds adopt the Fund Level Deduction method for deducting fees and expenses.
For Fund Level Deduction, the fees charged mainly comprise administrative expenses (such as investment management fee, trustee fee, scheme administration fee and custodian fee) charged on an annualized rate basis. The exact amount of administrative expenses levied entails complicated calculation on the basis of the net asset value of the fund as a whole. As the expenses are deducted from the assets of the fund and not directly from individual scheme members' accounts, the exact amount payable by you is not available.
The fees and charges of a constituent fund as a percentage of fund size is expressed in terms of the Fund Expense Ratio and is set out in the Fund Fact Sheet made available for each scheme member twice yearly. It is also available on the "Fee Comparative Platform" on the MPFA’s website (http://cplatform.mpfa.org.hk/
- Should I take as reference a fund's cumulative return rate or annualized return rate when reviewing the performance of a fund?
You can take as reference both the cumulative return rate and the annualized return rate when reviewing the performance of a fund. The cumulative return rate reflects the return of a fund accumulated over the period concerned. The annualized return rate indicates the average yearly return of a fund over the same period concerned.
On Operation and Procedures
- Why have my MPF contributions been invested according to the Default Investment Strategy (“DIS”) by the trustee?
When you join an MPF scheme, you have to specify your investment mandate in the MPF scheme application/enrolment form and your trustee will invest your MPF contributions according to your instructions. If you have not given any investment instructions
, your trustee will, according to the legislation, invest your contributions according to the DIS
- When will my trustee subscribe fund units for me after it receives my contributions?
Trustees will subscribe funds for scheme members only when the contributions are cleared by the bank and the trustees have completed the relevant administrative procedures (e.g. checking correctness of calculation of contributions).
- I am an MPF scheme member, and I am also an investor in stocks. When selecting MPF schemes/funds and deciding if portfolio adjustment is required, I focus on short-term fund performance. Can I place several fund-switching orders on the same day to speculate on the price change of MPF funds?
Investing in funds is different from trading in stocks. Funds are traded on a “forward pricing” mechanism, i.e. the price of fund units can only be calculated after the close of market when the prices of underlying investments are available. Only one fund price is calculated for each dealing day, so it is impossible to speculate on the price change of MPF funds by placing several fund-switching orders in the same day.
- Why does the switching of MPF funds sometimes take less than a day and sometimes take several days?
The time required to complete a request to switch between constituent funds (“CFs”) within a scheme may vary with the method of instruction used. In general, the processing time of fund-switching through trustees’ Interactive Voice Response System and the Internet is shorter than that through instructions given in paper form.
Some CFs invest in approved pooled investment funds (“APIFs”) which are operated by different investment managers. Transactions between CFs and APIFs are processed on a cleared fund basis. Therefore, it takes time to redeem units from the APIF level to the CF level and re-allocate the subscription from the CF level to the APIF level.
- Why do trustees often take the lowest price to redeem and the highest price to subscribe when processing my fund-switching requests?
When the switching order is placed, the price of the fund is not known by the MPF trustee nor the scheme member. This is because funds are traded on a “forward pricing” mechanism, i.e. the price of fund units is calculated after the close of market when the prices of underlying investments are available. Moreover, during the course of completing all necessary administrative procedures for the trading of the fund units, the fund price may have gone up or down.
- Why am I not given the option to specify the date of redemption when I give a fund-switching instruction?
For most MPF schemes, a scheme member cannot specify a particular day to redeem his MPF funds as trustees need time to complete all administrative work and the process might involve external parties such that the definite processing time is unknown. Moreover, some constituent funds (“CFs”) invest in approved pooled investment funds (“APIFs”) which are operated by different investment managers. Transactions between CFs and APIFs are processed on a cleared fund basis. Therefore, it takes time to redeem units from the APIF level to the CF level and re-allocate the subscription from the CF level to the APIF level.
- Why does it take so long to complete a transfer request, and why is the transacted price different from what it was when I placed the transfer request?
A transfer involves both the original and new trustees and has to go through some administrative procedures. After receiving a transfer request, the new trustee needs to verify the information submitted (and open an account for you if you do not have one with it) before sending the information to the original trustee for verification.
After verifying your information (e.g. notice of termination, if applicable), the original trustee will redeem the units in your account and transfer the accrued benefits to the new trustee. And the new trustee will buy units in fund(s) as instructed by you. As funds are traded on a “forward pricing” mechanism, neither MPF trustees nor scheme members can know the trading price when placing a transfer request. Also, as it takes time to complete all necessary administrative procedures for the trading of the fund units, the fund price may have gone up or down.
- Why is the amount of accrued benefits I received significantly lower than what was reported when I gave the instruction to withdraw said benefits?
It takes time for the trustee to verify your application (e.g. they need time to check the identity of the applicant and relevant documents which prove that the applicant fulfils the conditions for withdrawal) and complete the administrative procedures before the fund units are redeemed. As funds are traded on a “forward pricing” mechanism, neither MPF trustees nor scheme members can know the trading price when placing a withdrawal request. Also over the course of time, the market may have gone up or down and thus the final price of units redeemed may be higher, or lower, than it was at the time you made the withdrawal request. There may also be charges upon withdrawal of benefits.
- Would my MPF benefits be affected if my trustee goes bankrupt?
No. The assets of the MPF schemes under the trusteeship of the trustee are segregated from the assets of the trustee. Accordingly, in case an MPF trustee goes bankrupt, your assets and those of other scheme members will not be affected.
- Why can't my trustee provide real-time fund prices to me, like stock trading?
Trading in MPF funds is different from stock trading. Just like retail funds, MPF funds are traded on a “forward pricing” mechanism, i.e. the unit price of a fund can only be calculated after the close of market when the prices of underlying investments are available.