MPF Investment

Fund Types And Features

What is a guaranteed fund?

A guaranteed fund (GF) provides some form of guarantee to scheme members investing in the fund, usually on the capital invested or on a minimum rate of return. Apart from basic charges, the guarantor usually charges a guarantee fee or reserve charge for providing such a guarantee. Most GFs in the MPF market are conditional guarantees, which require fulfilment of a set of conditions, while an unconditional guarantee is provided without any conditions imposed.

Conditional guarantees

For conditional guarantees, it is important to pay special attention to the qualifying conditions, which may include:

 

  •  Minimum investment period – The guarantee will be voided during this period if
    o    the scheme member withdraws MPF out of a GF, or
    o    an employer transfers all its employees' MPF accounts to another MPF scheme.

  • Withdrawal requirement – When scheme members withdraw their MPF, the investment guarantee may only be applicable under specific circumstances. Examples include:
    o    after holding the fund for a minimum period (e.g. three years or above),
    o    making a minimum number of contributions (e.g. 90 contributions),
    o    holding the fund for a minimum period (e.g. five years or more) after making the last contribution,
    o    reaching the age of 65, or otherwise meeting the legal requirements for early withdrawal of MPF.

  • Cancellation or modification of guarantee – Scheme members should check the MPF Scheme Brochure (also known as “offering document”) and other marketing materials for the circumstances in which the guarantor may cancel or modify the guarantee.

    For some GFs, the guarantor may unilaterally change the guaranteed rate by giving an advance notice of one to three months. In certain cases, the guarantor may cancel the guarantee in the light of unfavourable market conditions.

If scheme members fail to meet the qualifying conditions of GFs, they will not be entitled to the guarantee. Therefore, it is crucial to review the details and understand the qualifying conditions before investing in a guaranteed fund.

 

The risk of GFs is considered relatively low. However, there is the risk that the guarantor may fail to provide the guaranteed return. In addition, scheme members who invest in GFs that are invested in an insurance policy should be aware of the credit risk of the related insurance company.

 

For more information about the major types of MPF funds, please visit the thematic website on MPF investment education.

A guaranteed fund should be investment-linked?
A GF can be investment-linked (in which case returns are based on the performance of fund assets) or non-investment-linked (if returns do not hinge on asset performance).